LAW COMMISSION OF INDIA SIXTY- SEVENTH REPORT ON THE INDIAN STAMP ACT, 1899 February, 1977P. B, Gajendragadkar CHAIRMAN LAW COMMISSION * GOVERNMENT OF INDIA 12, TUGHLAK ROAD, NEW DELHE-It ‘March 1, 1977 My Dear Minister ” Ehaave great pleasure in forwarding herewith the sixty-seventh Report of the Commission con die’Tndian Stamp Act, 1899. the first Chapter indicates, the Law Commission, soon after its initial constitution, had that it would revise the Stamp Act. However, since the Commission was thea with other subjects of an urgent nature, it could not take up the work of revising ‘Thereafter, that announced plan has remained unimplemented Samp Act, 28 announced es ._ ¢afiee the present Commission submitted its Reports on topics, which it thought wese iitgent, it felt that the cartier announcement made by the first Commission should be ‘out and a thorough study of the Stamp Act mae with a view to make suitable récom- ‘mendations for amendment in regard to its provisions. ‘Perprdiogly, the whole Act was carefully examined gad fhe question pertaining to its amend- ig. material particulars was considered and the pros gnd cons of every recommendation ee discussed. ° Iii order to facilitate the formulation of its final recommendations, the Commission sent ‘8 @eketboonsire to persons and institutions interested ia the problem, and the replins rectived ‘by it in reiponse to its Questionnaire have been carefully esamined. Besides, some suggestions fot smuking amendments in the Act bad already been received ; these also have received careful ‘sobaidetation by the Commission. ‘Alter discussion of the entire problem in its broad perspective, examining its provisions cone By ane, the Commission has decided to make the recominendations iadicated in the Report. The T hope, will speak for itself, But, I wool liké te mention some important amend- ‘malaebich the Commission has recommended in exer qo. simplify and rationslise the Iqw wit Glee to improving its working. ‘ih $m examination of the Act, the Commission found thatthe definitions of “bills of exchange’, ‘peomilyeery notes’ and ‘policies of insurance’ led! ‘certain problems and the “Comuistidn {pet pheppted to solve them by suitable redrafting of the said definitions. 0a It is obvious, that in an Act, like the Stamp Act, provisions relating to the mode of denoting Payable duty are of considerable relevance in their proper collection. Bearing this principle in mind, the Commission has made suitable recommendations to provide for consolidation of duties on certain instruments not covered at present and also for the use of the frankiog machines. These emendments, it is hoped, will simplify the machinery of collection and pave the way for its modernisation. In regard to the meaning of the expression “bond’, the Commission found consideratm. uncertainty which appeared to cause inconvenience not only to the tax-payers, but also, in some cases loss to the revenue and in many cases unnecessary waste of valuable judicial time, ‘The Commission believes that the recommendations, which it has made for the amendment of this part of the Aet, will, to a large extent, rationalise the position in that behalf It is plain that in the Stamp Act where the important and indeed vital matter pertains to the person who is liable to bear burden of duty vis-a-vis Government. The present provisions in-sections 3, 29, 40.and 48 are somewhat sketchy and incomplete and the diversity of judicial opinion in respect of the import of these provisions appeared (o the Commission to weakrm the ‘very foundation of the authority of the State to recover the deficiency in stamp duties because the person, on whom the liability is imposed, remains substantially undefined and therefore unidentified. After careful study of the tue jaristic position in this matter and the views expressed by several judicial decisions, the Commission has recommended a solution which attempts to the position in a clear, compact dnd easily intelligible manner. ‘ ‘It is clear that if the proper duty prescribed by the Act is not paid, the Act must providé for a suitable penalty. ‘To some extent, however, the penalty provision prescribed by scétiog _ 35 has» by reason of its drastic sharacter, proved to be unrealistic in its working, The, Com- mission's recommendation for amending thig. provision, in one sense, Iiberalises the section to ‘some: extent but would, according to the Commission, ultimately facilitate better enforcement the Act. ‘ ‘The Commission noticed that, by virtue of the power conferred on the appropriate Govern ‘ments to grant concessions and reductions gf stamp duty, a virtual plethora of -notijedtidas hag ‘emérged. Some of these notifications ‘are of gteat importance. In an area of such 4mpartiiet, according to the Commission, the Act itself should incorporate exemptions ‘rathed thin ‘Rial it to the rules and orders which, as ix wellknown, are not easily available to the public. The ‘Commission has recommended @ few amendments which proceed on this’ assumgtion.; The recommendations relating to the-remision ‘granted in regard to bills of exchahge. and promigaory notes can be cited as instances in point... ; mission in the hope that Government will appreciate the magnitude and urgency of! and will soon undertake Icgislation on the lines recommended by the Commission in ‘the Report. r yi Let me add that in making thede| recommendations we have avoided to affot hg rates In ady substantial manner because: we thought that the question about the fixation of peles'oqnst- tutes a question of policy on which the Commission would not like to make any 1 ie tig scancat T have deliberately mentioned some of the significant recommendations. madq co} 1 Having tegud to the many problems which we Sted in seving the prow Af 213 may surprising that the Report extends over ‘900 pages in type, and coimprises ty < a Before concluding, I would like to add that after the Commission Was constfhited if Sephenaaib 1971, it las forwarded twenty-three reports (mumbering forty-five to sixty-seven) including the present one ; end after the present Commission was re-constituted in September 1974, it has forwarded seven Reports including the present one,ai In the ond, let me repeat the suggestion which I have already made on two or three previous occasions that, after the Report of the Commission is printed, copies of the report should be circulated to the relevant academic and professional institutions so that it may stimulate ‘a debate on the questions considered by the Commission and that, in turn, may assist Govern- ‘ment in coming to its own conclusions on the relevant recommendations made by the Commission. ‘With warm personal regards, ‘Yours sincerely, Sdjf- (®. B. GAJENDRAGADKAR) “Hon'ble Shri H.R. Gokhale, ‘Minister of Law, Justice & Co. Aftairs, Govecament of India, Shasiti Bhavan, New Delhi-110001.REPORT ON THE INDIAN STAMP ACT, 1899 CHAPTER 1 GENESIS OF THE REPORT 1.1. This Report relates to the Indian Stamp Act, 1899 which is a fiscal enactment of daily importance to the citizens. A proposal for taking up the Act for revision was announced by the Law Commission soon atter its initial constitution’; but, somehow, this work was not taken up because the Commission was busy with other subjects. When the Commission was reconstituted in 1971, its terms of reference were widened, and revision of Jaws in the Tight of directive principles was included within those terms. Having dealt with several laws which were of importance from the point of view of directive Principles, the Commission took up the Stamp Act. Meanwhile, on several occasions, sugges- ‘Hols have been received by the Commission from various sources, for considering amendments in speciic sections of the Act. Those suggestions have been duly taken into account, as also the replies received to cur Questioonaire, in making the, recommendations contained in the succteding Chapters. 1.2, Of the corresponding English Act, it has been stated by one reviewer*— 2 “Of all the branches of revenue law, none, in the experience of your reviewer, is f ‘one-half +o dull as stamp duties ; and there is none on which it is mote difficult to express an opinion with any degree of certainty. The reason in each case is that this subject has no underlying principles ; it springs basically from the Sche- dule to the Stamp Act, 1891, see ere Goa neil Inland Revenue Commissioners v. Henry Ansbacher and Co, (1963) A.C. 191, 204, as ‘a mere conglomeration of unco-ordinated provisions.” ” ‘Tid sepect shows the difficulty of revising the Act. 1.3, Before we proceed to mention the broad lines on which revision of the Act could ‘be jassfully considered, we think it necessary to deal with certain preliminary questions, not way of introduction but also in order to draw attention to the constitutional position legislation in respect of stamp duties, and othér aspects of importance’, 1.3A, Stamp duties, as is evident from the Act, are paid by affixing a stamp, either or, in some cases, adhesive, to the instrument required to be stamped. Under section 3, i is the instrument which is chargeable with duty. It follows, therefore, that if a legal ‘can be effected orally, no stamp is required, because thero is nothing to which the felipycan be fixe and cause the chgog ton levies day on an imrameat only. ’ ‘therefore, it would be correct to say that “the thing which is made liable to duty *. t",—as was observed with deference to the ‘English law by Lond EsherMISR* view was expressed by Rowlatt, J—a distingalshed authority in taxation Inw Specs rerned in the Howe of Lott EWRIYS6/L.C. 11 (Notes) (Note dated 14th May,1957); B. XST/LC. TI, 8. No. 1. 2 Book review of Farrand, Stamp duties for the Conveyance: (1963), 107 Solicitor’ Journal, 149, 3. See dicussion 28 to “ines of revision, infra. 4 Internal Revenue Consmissoner ¥. Angus, (1889) 25 Q. B. Div. $79, 589. S. Manex Lid, v.IR.C., 1933) 1 KB, 173, 179; 148 LT. 164, 166. 6 ape 1.8.6. (980 A.C. 206, 227,21, 386; 989 1 WLLRO98, $9, 904,910; afiraiag 95H) 2 All 8. ortance of rupert ‘Nature of ‘Stamp laws, Proiminary aspects. Nagure of Stamp Duties,ean of = gas Iouarpretation. 2 This is what Rowlatt J. observed :— “The Stamp Act deal not with the commercial effect of the transaction, but deals ‘with the vehicles ; and you look at the vehicle to see what it does.” = — Ta the House of Lords, it was stated :— “Yet the aw with rcgard to liability to stamp duty is clear enough. The duty is charged upon instruments, if they exist and come within any of the categories prescribed by the Act.” “Tt is not charged upon transactions. ‘Thus, property such as chattels, witich by luw pass on delivery, can be transferred from one owner to another ‘thout attracting uty. Again, though an agreement for sale may be cha ad valorem, sinee the Act has so required, an oral agreement for the sale of, yi involves no charge to duty because no instrument is brought into effect or to record it”. ‘ 1.4, It is also well-established that if the charging provision does not, on a. + aco, ppl othe peur stunt, then day B act levies At he aie ie charging provision applies, thea duty is leviable unless, of course, the citizen can bring himeelf within @ specific. exception. About hundred and forty years ago, Taunton J., pointed out? that “the law upon the subject of Stamp is altogether a matter posiivi juris, It involves nothing of principle or reason, but depends altogether pon the language of the Legislature.” —~ 1.4A. One of the major sanctions for ensuring that instruments are duly stamped, is the provision‘ that an unstamped document is aot to be admissible except in certain: qasea,— It it ‘well established also tha if a documeat is not admitted for want of stamp duty. evidence of its conteats—even where otherwise permissible under the law of evidence—canhat, ‘ve given, and this shows (he importance of the Stamp Act, not only as a measure of fisca’™ legislation but also in relation to judicial proceedings. 1.5. Usually, legislation relating to stamp duties has to provide for several matiers of, detail as well as of subsiance. It is not necessary at this stage to enumerate all those manera, or evéa to analyse them. But it would be useful to point out here that stich indeed, any taxing statute—usually comprises two broad categories of provisigng, sannely, charging provisions and machincty provisions. The charging provisions lay down, ( of tax, while the machinery provisions, create the machinery and lay down the pape the assessment, collection and refend of the fax. This distinction bas not merely interest, because, under the Constitution®, the legislative power is demarcated @ rates of stamp duty, and (b) stamp duties. In the enjuing discussion, provisions ielevant to stamp duties other than the rates of stamp duty will be referred to as machinery pidvistons, {or the sake of convenience. i 1.6. Principles for the interpretation pf stamp laws are broadly the same the interpretation of other taxing statutes, namely, an ambiguity in a charging proti natily resolved in favour of the citizens, but where the citizen claims the benefit off aa tion, he has to bring himself within it. ‘The major difficulty which the courts ‘construing the Stamp Act-—apart from thete attributable to defective drafting — latise out of the fact that often there is, no rational principle forming the batis of daty oa a particular document of the Idvy'6t a higher rate of duty on a ‘contrast with smaller duties feviedl on btbet analogous documents. 1. G957) 3 WLR, 898, 901 GEL) per Lord Raccife 2 Gurr. Scuddy, 11 Ex 190, 191 (Lord Chief Reron Polloch). 3. Marley v. Hall, (183492 Dow. 494,499, 497. 4 Section 35. 5. Bee infra.; 3 1.7. The idea of raising revenue for the State from the transactions ofits citizens originated Histor of in Holland!. ‘The first stamp law was passed in Holland in 1624. In England, it was first “me 3 adopted under Charles I but, under the reign of William and Mary, it assumed a definite shape and thereafter various statutes were passed requiting stamps on various instruments among the English people? 1.8. Ia India, the frst stomp law wes Regulation 6 of 1797, which was limited in it guargp Dates ‘extent to Bengal, Bihar, Orissa and Benaras. Various stamp Regulations were subsequently ining fntroduced in the sister provinces of Bombay and Madras. By sections 16 and 21 of the Bengal Regulation 6 of 1797, all written obligations, except Bills of Exchange above Rs, 50 in value, were made chargeable with ad valorem duty, ranging ‘som four annas to one rupee. With a few exceptions, all other instruments 2s well as all copies were made chargeable according to the quantity of matter engrossed on the stamp paper (@he stamp paper varied in size and value, from two annas to one rupee). ‘The immediate ‘occasion for this Regulation was the abolition of the tax for the maintenance of police estab- Tishments, leviable on “Indian Merchants and Traders.” 1.9. Although the stamp dlaties under this Regulation were primarily intended to compensate ’ for the deficiency in the public revenue occasioned by the abolition of the tax on merchants ‘tc., this Regulation paved the way for a series of later enactments relating to stamp duties. Regulation 7 of 1800 introduced a fresh set of provisions as to stamp duties, and it may be of interest to note, thet for the first time, a specific provision was introduced for stamping an acknowledgement for the receipt of money at the same rate as the ralc prescribed for an instrument creating an obligation. The stamp duty on many other deeds was doubled, and 2 proton was allo inrodsced 10 enable the holler of a unvamped documento. get the ‘satfsion to stamp rectified, by presenting it to the Collector. To check the practice of forging ‘of stamps, Regulation 13 of 1806, Regulation 7 of 1809 and Regulation 12 of 1810 made additions or modifications regarding the sale and authentication of stamp papers ‘Certain changes were made by Regulation 12 of 1812, Regulation 16 of 1813 and various ‘other Regulations, passed from 1814 to 1829. In Madras, Regulation § of 1818 (sections 9, 10 and 11), mainly modelled on Bengal “ Regulation 7 of 1800, contained the principal provisions as to stamp duties, followed by Regu- lation 2 of 1813 and Regulation 13 of 1816 as modified by Regulation 2 of 1825. In Bombay, the first enactment relating to stamp duty was Regulation 14 of 1815, followed ~~ by Regulations passed in 1827 and 1831. 1.10. So muuch as regards the Regulations. In 1860, the first Act relating to stamp duties (Act £0 of 1860) was enacted in India. It repealed all the existing Regulations. Prior to this ‘Att, there had been some amending Acts*, adding to the law contained in the Regulations. The Stamp Act of 1860 was amended the same year, and repealed and replaced by Act 10 of 1862, The Stamp Act of 1862 was amended in 1865 and 1867, and was finally repealed (as stamp duties) by Act 18 of 1869. The last montioed Act was replaced by the Stamp Act af 1879 (Act I of 1879), which was the immediate predecessor of the present Stamp Act. ‘The Stamp Act, of 1879, curing its short lif underwet numerous alterations (it was amecded 9 times),‘, and was ultimately repealed by the Stamp Act, 1899, which contains the present law on the subject. 1.11, Daring the period that tas elapsed since 1899, the Stamp Act has been amended’ jidgneqte, several times. ‘The most important amendments were made in 1904, 1906, 1910, 1923, 1927 “PANTRY: and 1955, The last mentioned amendment is the most important rom the point of view of the terzitorial application of the Act. 1. MEN. Bas, Indian Stamp Act (1954), page (i). 2. Ponion in England in dell s dealt with, nyt. 5 Act 14 of 1840; Act 9 of 1847; Act 15 of 1859. 4, AGED of 1881; Act I of 1BRB; Act S of 1886; Act 18 of 1889; Act 6 of 1889; Act 20 of 1890; Act 12 of 1891; Act SBF 1B; Act 13 of 1897,4 ‘The introduction of decimal coinage in 1958 necessitated extensive amendments in the Act. No comprehensive revision of the Act has, however, been attempted so far. 1.12. In England, stamp duties were first imposed at the end of the 17th century*; they fare now governed primarily by two Acts of Parliament, one imposing the duties’, and the ‘other making mmerous administrative provisionst. But it should be noticed that the Stamp ‘Acts in England have been repeatedly amended by subsequent Finance Acts and Revenue ‘Acts, and some of these amending Acts expressly direct that the relevant sections shall be read “together with” or as, “one with” the Stamp Act, 18918, ‘The fundamental principle on which the English Acts are based is the same as in India, ramely, “the thing which is made Kable to duty is an instrument.” Exemptions from duty in England are not given by notification, but are contained in the relevant Act. And, of course, it need not be stated that if a document does not fall under any of the enumerated categories, it ig not Hable to stamp duty. Examples of such documents ia England are—affidavits, awards, bills of lading, coupons for interest, proxy for one meeting only, receipt for an amount less than two pounds, share certificates and statutory declarations”. 4.13, It is well-known that one of the causes of the American revolution was the Stamp ‘Act of 1765, introduced by George Grenville. ‘The Act levied a duty on every “skin or piece of vellum or parchment or sheet or paper”, used for legal documents, commercial transactions, ete Opposition to this legislative measure in the American colonies was so strong, that the expenses of collection of the dnty exceeded the revenue realised. 1.14, We may now tum to the constitutional position in India. At the time when the Indian Stamp Act, 1899 (a Central enactment) was enacted, the duties levied under each of the several articles in its Schedule became part of ceatral revenues, no part of it being speci- fiealy allocated to the provinces. A change was, however, introduced into this system by the Montford Reforms of 1919. Section 45-A of the Government of India Act, 1919, enacted : 45-A. (I). Provision may be made by rules under. this Act = (h) for the devolution of authority in respect of provincial subjects to local Governments and for the allocation of revenues or other moneys to those Governmenis.” Devolution Rules were framed under this provision and rule 14(1) read : 14(1). The following sources of revenue shall, in the case of Governors’ provinces, ‘be allocated to the local Goverament as sources of provincial revenue, namely -— “(by reesipts accruing in respeet of provincial subjects (f) the proceeds of any taxes which may be lawfully imposed for provincial Purposes.” Schedule 1 to these rules classified sub and Provincial-—Pert 1 and Patt If rxpectvely. ran in these terms "20, Non-judicial stamps, subject to Legislation by the Indian legislature. .. {Tie Indian Stamp (Armsndment) Aci, 1958 (19 oF 19383. jects of Legislative power into two heads, Central Item 20 of Part Ti—List of Provincial subjects— 2 tn 1964. 3, Starap Act, 1891 Eagland). 1 Samp Duties Management Act, 1891 (England). $ SaDEY Rerence Comonsioners v. Angus, 23 Quoees Bench Division $79, 589 (Lord Ese, MR. &. C.F. section 1, Stamp Act, 1891 (England) 7. The Betis not exraustve, 13, Eneyclopeedia Brtentica, Vol. 21, page 306. History of ro5 Section 80-A(3) laid down the formal requirements with which the Provincial Legislatures shouid comply betore enacting these laws : “80-A(3). The local Legislature of any province may not, without the previous sanction of the Governor-General, make or take into consideration any law (a) imposing or authorising the imposition of any tax umless the tax is a tax sche- Guled as exempted from this provision by rules made under this Act ; or In pursuance thereof, the Scheduled Taxes Ruks were framed which specified the taxes which might be imposed by the provinces either for their purposes or for the purposes of local authorities within them without the previous sanction of the Governor-General. In regard to stamp duties, item 8 of Schedule I to these rules enabled provincial legislation without previous sanction only in regard to— “8. A. stamp duty other than duties of which the amount is fixed by indian legislature.” ‘The result of this Scheme was that by virlue of the main provisions in section 80-A(3) (a), tee local legislature could legislate for the levy of stamp duties on the instruments included in the Stamp Act, 1899, only after obtaining the previous sanction of the Governor-General. Se¥éral Provinces took advantage of these provisions aud enacted legislation on the subject ‘of stamps after obtaining the previous sanction of the Governor-General under section 80-A(3), ‘waking the proceeds part of Provincial revenues and amending the rates of duties imposed by Sebedule I of the Indian Stamp Act, 1899. 77 FAS. The Government of India Act, 1935, effected a substantial change in the law in ‘elation to stamp duties, carrying to its logical result the provision of the Devolution Rules and ee pewetice that prevailed thereunder. It also introduced a dichortomy, so far as the provinces “were concerned, between the substantive law relating 4o the levy and collection of the duties inctndiag the machinery therefor on the one hand, and the rate of levy on the other hard. ‘The White Paper proposals started this cleavage by listing “Stamp duties which are the subject Of legislation ty the Indian Legislature at the date of the Federation” in the exclusively Federal List 1, and “stamp duties other than those provided for in List I” as a source of Provincial Revenue. ‘This rather vague form received clarification in the report of the Joint Parliamentary Committee. In their revised lists, “Fixation of. rates of, stamp duty in respect of bills of exchange, bills of lading, cheques, letters of eredit, promissory notes, policies of insurance, Proxies and receipts", was made exclusively Federal (Item 53 of List I), while “fixing of rates of stamp duty in respect of instruments other than those mentioned in item $3 of List 1" ‘was put in as item 32 in List I--the exclusively Provincial List. ‘The legislative power to enact Stamp Laws in gencral, as distinguished from the “fixation of rates of duty", was assigned to the Concurrent List (Item 10), which read “‘Law of non-judicial stamps, but not inchading the fixation of rates of duty.” These recommendations of the Joint Parliamentary Commities were adopted by the framers of the Government of India Act, 1935. ‘The instruments men- tioned in item 53 of List 1, set ovt above, were allocated to the exclusively Federal List T {tem 57)---but instead of the words “fixing of rates of stamp duty”, the expression “rates. of stamp duty" was used. 1.16, The Constitution of India followed, in this respect, the pattern of the Government of India Act, 1935. Entry 91 of the Union List reads : “rates of stamp duty in reapect of bills of exchango, cheques, promissory notes. bills of Inding, letters of credit, policies ot Insurance, transfer of shares, debentures, proxies and receipts”, while Entry 63 of the State List provides for legislation in regard to “rates of stamp duty in respect of documents other than those specified in the provisions of List 1 with regard to rates of stamp duty”. Entry 44 ‘of the Concurrent List deals with the power to make a law in relation to stamp duties ax distinguished from the rates of stamp duty in these terms. “Stamp duties other than duties ‘of fees collected by means of judicial stamps, but not including rates of stamp duty.” 24 M of Law 7 ‘Act of 1935, Legilative Enures.6 Preset 1.17, ‘The Constitution has a number of other provisions relevant to stamp duties. OF onsttational these, article 246 and the Scventh Schedule are relevant in regard to the legislative power to levy stamp duties. -Atticles 265, 268 and 269(e) are relevant mainly as regards the distribution fof the revenues. ‘The former is more important, for the purposes of @ consideration of the Stamp Act. 1.18, Briefly, the scheme provided for in the Constitution is as follows : (a) Under article 246, such stamp dutics as are ntentioned in the Union Listt are levied by the Union, but, under article 268, each State in which they are levied, collects and retains the proceeds (except in the case of Union Territories). The documents are specified in Entry 91, Union List : “91, Rates of stamp duty in respect of bills of exchange, cheques, promissory notes, bills of leading, letters of credit, policies of insurance, transfer of shares, deben- tures, proxies and receipts.” (b) Other Scamp duties are levied and collected by the States, by virtue of the legi- Tative entry in the State List, already quoted below? :— “63. Rates of stamp duly in respect of documents other than those specified ia the provisions of List } with regard to rates of stamp duty.” (© And the Concurrent List? contains the following entry e “44, Stamp duties other than duties or fees collected by means of judicial stamps, but not including rates of stamp duty.” “This entry dcels with the general subject of stamps. Provisions other thant those relating to rates of duty ate, thus, withia the legislative power of both the Union and the States. . (6) Broadly speaking, therefore, except as regards Union Territories, Parlixtwent’s legislative power extends to :— 7 G) rates of stamp duty on the specified documents + (11) machinery provisions, in respect of all documents. 1.19. The position ean be stated in the form of a Chart as follows : {HE CONSTITUTIONAL PROVISIONS CONCERNING STAMP DUTIES wag aa i Se pt Se sone i ase oon cee nt cones de ‘amare smn wy oor i cote om ptt oro va oe cena oe mat oe von =. ‘of shaves, debentures, proxies end receipts uy. 1. Schedule 7, List 1, entry 93 2. Sehedale 7, List 2, entry 62° 4. Schedule 7, List 3, entey 44 4. For convenience, provisions not relating to rates roxy be refered 10 a8 “machinery provisions7 1.20. Thus, the power of the Union exiends to the whole feld of stamp duties, except that as reyards rates of stamp duty in the States, it is confined to the specified documents. It is plenary as regards machinery provisions. Fall use, however, has not so far been made of Parliament's legislative power in relation to machinery’ provisions. 1.21, Having dealt with the important preliminary aspects, we now proceed to state briefly the lines on which revision of the Act would be desirable. 1.22. The defects which were described in the Act of 1879 at the time of introduction of the Bill in Council, and the improvements which were suggested to remedy those defects, can be said to provide the justification for revising the present Act also. First, there are cases in which, for want of clarity, the law has failed im its intention, The Stamp Act is left very largely to # sort ‘of “automatic operation”, inasmuch as it is applied to citizens themselves to their own transactions ‘as evidenced by the instruments; and the burden of its interpretation rests, not only upon the lawyer, but also upon the layman. It is all the more necessary, therefore, that the Act should, in its expression, be as clear as possible, so that people who desire to pay proper duty on their documents and who have no intention of evading the duty in any way, may clearly understand the obligations wich rest upon them. ‘Then, there are cases where the provisions of the law, though clear, can be, and have been, “evaded by carrying out the transactions in a fraudulent manner. Thirdly, there are cases where greater facility could be given to the public to hardships, Without making any scrious inroads on the revenue. Fourthly, there is nced to introduce uniformity where divergence has arisen owing to conflict of desisions. Finally. notice has to be taken of statutory and other developments which have a bearing ‘os.stamp duties. 1.23. The Stamp Act is a taxing statute. It is not purely a “lawyer's law"; and a revision of the tx structure raises important matters of policy. Moreover, even if revision of the rates of duty were to be embarked upon, constitutional competence of the Union in that respect is Limited to the documents mentioned in entry 91 of the Union List, (except as regards Union territories). ‘There is, however, (us already stated), considerable scope for revision of the Act in other sespects, without materially affecting the rates of tax. Without claiming to be exhaustive, it may be said that even after keeping the above limitation in mind, revision is possible in respect of — (a) the structure and arrangement of the Act; (b) the legal Jabels employed in the Act, to denoie the various kinds of documents; (©) rectification of the unsatisfactory position, arising from conflicting decisions ot otherwise, in regard to the charging section and connected provisions; (d) improvement of the machinery provisions; (e) reducing the multifarious variety of rates of stamp duty—of course to the minimum extent, so as not to affect the States’ revenues; and : © incorporating, in the Act itself, méay of the remissions granted by notifications i under section 9. 7 ‘We are satisficd that revision on the above lines would considerably simplify the Act, and ‘bring. it up-to-date from the legal point of view, and would also contribute to the removal of Practical difficulties felt by reason of some of the drastic provisions of the Act?. old perty 1.24, At this stage, therefore, it would be proper to mention that in our consideration of the Act, we have kept before ourselves certain broad guidelines which it may be convenient to set out. 1. Eig. see discussion a5 to section 2(4)—bill of lading and article 2 Eg. section 35, Lines of Scope for revision ofthe Stamp Act. Comsiderstions ‘cop in nein8 Ja the first place, we have considered it legitimate to recommend such changes as were necessary to rationalise the Jaw or to simplify its working, and generally to avoid difficulties in its implementation ur general approach in this regard is based on our firm belief that the smoother the working of the law, the better will it be for all concerned. We do not, in this context, postulate a conflict, between thc interests of the revenue and the convenience of tax payers. Secondly, in the interests of easy accessibility of the Iaw, we have, where the circumstances So justified, suggested amendments to incorporate in the section exemptions of long standing. Thirdly, where we found that the provisions of the Act—in particular, what can be con- veniently described as the machinery provisions—have Ied to serious inconveniences or to unnecessary controversies in the courts or official circles or to avoidable delay, we have not shrunk from recommending suitable amendments. We belicve thet oven though it may, at the first sight, appear that @ particular amendment proposed by us with this object liberalises the law in favour of the citizens, yet, ultimately, the revenue will also benefit, inasmuch as ignotarice ‘or misunderstanding of the law as well as the temptation to evade the law will be mintntiacd. Moreover, itis legitimate to point out that ordinarily speaking, a taxation law ought not to be 80 formulated as to encourage the raising of dishonest defences by litigants, particularly where the interests of the revenue can be sufeguarded by other provisions. me We are making this observation particularly with reference to the changes which we are recommending in the law relating to instruments not duly stamped and in the provisions as to the levy of penalty. Scctions 13 to 15 and section 35 are instances in point. These amendments n6 doubt make the law more liberal than at present; but they are not, in out view, likely 10 lead to a serious increase in the evasion of stamp duties—if at al they are likely to Icad to any increase in the scope for evasion, Fourthly, apart from the convenience of citizens, there are situations where wider consi-” derations of public interest may have to override a very rigid enforcement of the revemue law. For example, the importance of detection of crime in an efficient manner and without delay justifies the legislature in making a relaxation of the ordinary rule that an unstamped tlocumest ‘hall not be acted upon by a public officer. Acting on this principle, we have considered it ptoper to recommend certain amendments to section 33(1). The section imposes an obligation to impound documents not duly stamped but there is an exception. Our amendment seeks to widen the excep- tion to this obligation—an exception which is, at present, confined to police olficers*. Fifthly, we have not undertaken a review, as such, of the rates of stamp duty. Incidentally, wwe note that as regards most of the documents to which the Act applies, the rates of stamps duty ‘ate within the State Legislative List. But even 2s regards other documents, our amendments are ‘not based on any need for increase or decrease in the rates. This general approach is, of course, subject to what we have stated above. Finally, it & our view that, as far as possible, the provisions of a statute shoukd be so framed as to maintain logic and consistency with basic juristic principles. Tt may not always be easy to discover or to maintain 2 logical structure in every provision of the revenue lews. But that certainly should be the sdeai,—at least in regard to machinery provisions; these provisions do not affect the rate of tax, and are intended to deal with details of its implementation. Lest thi ‘should sound to be too abstract a stetement, let us illustrate it by stating that where the Bability to pay stamp duty rests with a particular person who thus carries the primary doty, wedi consider it proper that the law should, overlooking this primary duty, impose w seciadiary sanction oa some other person?. We have borne this consideration in mind in dealing with the vexed question of the person on whom stamp duty can be compulsorily levied under section 48 read with section 49, T, See section 330), nro 2. Section 4, info.CHAPTER 2 SECTION 1 : TERRITORIAL APPLICATION 2.1. We propose tw deal in this chapter with the tertitorial application of the Act—first, the intra-territorial application, and next, the extra-territorial application. By vine of the proviso to section 1(2), the Act. as it stands at present, does not apply to areas which were previously comprised in Part B Stules, except in respect of rates of stamp cuties ‘oa documents mentioned in the Constitution, Seventh Schedule, Union List, entry 91. This is ‘the position emerging by reason of the narrow lines on which the Amendment Act of 1955, which extended the Act to areas of the erstwhile Part B States, was drawn. In this connection history of the Act is of interest. 2.2, Section 1, sub-section (2), as originally enacted, ran thus = “It extends to the whole of British India, inclusive of British Baluchistan, the Senthal Parganas end the Pargana of Spiti, The term “British India” was held to include the Agency Tracts inctuded in the Scheduled Districts.‘” Certain later amendments extended the Act to Scheduled districts and scheduled areas ; but they are not material for the present purpose. 22A. By the India (Adaptation of Existing Indian Laws) Order, 1947, the expression “the Whole of British India” in section 1(2) was replaced by the expression “all the Provinces of India”. Expressions like “Brtsit Baluchistan” etc. were dropped by the Indian Independence (Adapta- tion gf Central Acts and Ordinances) Order, 1948. By the Adaptation Order, 1948, the words “all the Provinces” were substituted for the ‘words “British India”. The Adaptation Order of 1950 also made certain verbal changes in this part of section 1(2). The clause as substituted by the Adaptation of Laws Order, 1950, read as follows : “It extends to the whole of India except Part B States.” Paragraph 8 of the Adapta- tion of Laws Order, 1950 enacted that notwithstanding the amendment about the extent of Jaw, the law should not be deemed to have been extended to any area to which it did not extend immediately before the appointed day (26th January, 1950). ‘By the Merged Siatcs (Laws) Act, 1949 (59 of 1949), the Act was extended to certain snorged areas ; but that extension is not material for the present purpose. By the Part C States {Laves) Act, 1950, the Act was extended to Manipur, Tripura and Vindhya Pradesh. To the suntwhile territory of Cooch-Bihar, the Act was extended by the Cooch-Bihar (Assimilation of Lanes) sAct, 1950. 2.2B. The Amendment Act of 1955 extended the Act to Part B States to the very limited ‘extent indicated by the section as it now stands. 2.3 In 1956, on the scorganisation of Statss, the proviso was adapted. The expression “Pept B States” in that proviso wes replaced by the words “the territories which immediately befpar'the Ist November, 1956, were comprised in Part B States”, by the Adzptation of Indian Laws No. 2) Order, 1956. ‘The proviso now reads a5 follows : “Provided that it shall not apply to the toitories which, immediately thefoce the Ist November, 1956, were comprised in Part B States excluding the Stake of Jammu and Kashmir except to the extent to which the provisions of this Act relate to rates of stamp duly in respect of the documents specificd in entry 91 of List I in the Seventh Schedule to the Constisution.” A. Collector of Visagopuinun v. KCK. Parnaik, VLR. 52 Mad. 1; ALR. 1928 Mad. 1181 (FB). 9 Introductory. ‘Section 1— Tntracterritorlal application History of, section 12) Adapiations Amendment of 1955—— Part B States.Pact B States Statewive position analysed 10 ‘The territories which were comprised in Pact B States before the Ist November, 1956 were (U) Hyderabad, now forming parts of Andhra Pradesh Stale, Mysore State and Maba- rashtra State ; (2) Madhya Bharat, now forming parts of the Madhya Pradesh State and the Rajas- than States (3) Mysore, forming part of the bigger State of Mysore as reorganised now re-designated us Karnataka ; (4) Patiala and J:ast Punjab States Union, now forming part of the Punjab State 3 (5) Rajasthan, now forming part of the Rajasthan State os reorganised and Madhya Pradesh State + (©) Saurashtra, now forming part of the Gujarat State; (7) Teavancore-Cochin, now forming parts of the Tamil Nadu State and the Kerala State 5 2.4. Thus, to areas formerly comprised in Part B States. the Act applies only to the extent to which its provisions relate to rates of stamp- which is the charaateristic of a bill of exchange. But this amounts to adding to the section, 3.13 In England, it has also been held*,* that the document need not contain any express ‘order for the payment of money. But, on this point, the Indian case law is to the contrary. It was held by the Punjab Chief Court* tha whatever may be the private understanding between the banker and the customer, the court must be guided by what is expressly stated Jia tbe document. 3.14. It would appear, that sometimes, on one and the same document, conflicting views hhave ‘been taken in the same court on the question whether the document did or did not fall within’ the extended part of the definition. 3.15. It is sometimes stated that the limitations to be read should be in the nature of confiniag the definition to documents analogous to bills of exchange and hundis. If so, it would ‘be beter to confine the section by suitably changing the wording in that manner. : 1. Section 32, Stamp Duties ete, Act, 1891 2 In the matter of the Stamp Act, ALR. 1928 Cal, 566 (FB), 3 Back ¥. Roboon, (1878) 3 Queens Bench Divn. 686, 61, 4 Fisher v. Calvert, (1879) 27 W.R. 804 (Eng). 3. Mead v. Youre, (1790) 100 English Repoels $76, 878. 6. Midland Bank Lid. v, Inland Revenue Commisioners, (1927) 2 King's Bench, 465, 474, 7, Alo see Rothschild v. C.LT. (1994) 2 QB. 142. 8, Jn Re Stamp Act, (1912) 13 Indian Cases 330 (Full Bench) (Chief Coust of Punjab). ‘Section 22)— Bill of Exchange"— Inclusive portion, Eaeis ei Drop— Introductory Express order ‘ifveqaired Conticting views ‘on one sail the Limitations — Vaguenees of.see ani (i Jewel M_R's Views a8 to section 43, English ‘Actof 1870. Critica of, Sefniion of romieory note" ig 3.16. By way of illustrating the vagueness of the present definition, it may be noted that the question whether attested hundis known as Shahajog hundis fall within the definition of “promissory note” or “bill of exchange”, raised considerable controversy in the Calentta High Court. In Asha Ram's case,t Fletcher J., held such a document to be an attested pro- ‘missory note, In a later case? Mookerjee, J., held it to be a bond, and held that it did mot fall within the wider definition of bill of exchange in the Stamp Act. However, ia a later case, Rankin, C.J., while criticising the language of the definition of “bill of exchasige”, pointed out that, teken literally the defisition in the Stamp Act might cover the document in question, 3.17. In England, in reviewing the provisions of section 48 of the English Stamp Act of 1870, which were almost identical, Jessel, M.R., expressed the opinion! that the section could never have been intended to include every document coming literally within the meaning of the words used. If that were so, almost every kind of written document could be included as a bill of exchange, and great injustice and confusion would arise, as they could not be stamped subsequently and would be altogether void. It was quite plain, therefore, that the draftsman must have intended that the words used should be read with some imitation. The nature of the instrument must be looked at in each case, and its precise nature ascertained, ALTA. We may, however, point out that the precise nature of the limitations to be read fas always caused difficulty. In this connection, we may refer to the criticism of the alteration introduced by the English Act of 1870, section 49, in the dilinition of “Promissory note”, by Pollock B. (This criticism applies to “Bill of Exchange” also) :— ‘It is unfortunate, | think, that in a statute dealing with revenue matters natural: terms, ‘have been enlarged 80 as to create a sort of legislaive document, other and different to the document which is commonly knowa by the term wed . ‘section we have to construe, here the Kegislature have taken a term of wel ‘known meaning, and have then said it is to mean something clse*”. It has been suggested, with reference to the corresponding provision in the earlier English Stamp Act of 1870, namely, section 48, that it will not apply to documents otherwise specifi- cally provided for by the Act®. But, with respect, this does not remove the vagneness. 3.18. A few English cases may be noted. In Rothschild and Sons v. Commissioners of Inland Reverue™ the Hungarian Govera- ment had issued certain bonds, in regard to certain loan transactions. Along with each boad ‘were issued coupons for the payment of interest. These coupons were payable to bauer at the various places therein specified, It was beld that the coupons were bills of exchange. {it was pointed out that in considering the effect of a document, the Court need not confine itself to the words actually used in the document, but may go behind it and consider the ‘purpose for which the document has been issued, 50 thar actual words of an order or rmanda'e to pay are not indispensable. Hence, the interest coupons merely stated that interest would be paid ata certain time and place and were not bills of exchange wih the Iga! deinen of that phrase, nevertheless they came within the more general language of the Stamp Act, may incidentally be noted thet such coupons were exemp'ed by later amendment. In Committee of London Clearing Bankers v. Commissioner of Inland Revenue,* it was held that ant order to a bank to transfer a sum of money from the customer's acobunt jt the atcount of another customer of the bank was bill of exchange. Such a document emitted. 1. Atha Ram v. Rest Chand, (912) 33 Taian cases, 47 (Cal). : 2 Kewi Chand v. Asha Ram, (1915) 19 CW, 1326. 3. Re, Imperial Bank of Ini, (1928) 32 CW.N. 1015, A. Fisher v. Cart, 27 W.R. 301 (Eng). ‘5. Mortgage Insurance Corporation v. CommisionersL.R., 20Q.B.D. page 651. 6 x 8 “Ademe ¥. Morgan, (1883) 14 LR. Ir. 140, ‘Rothschild & Sons. Consmissioers of tand Revenue, (1894) 2 QB. 142, 146, 147; 70 LIT. 667, Canmittee of London Clering Bonkers v. Commissioners of Inland Revense, (1895) 65 LJ. QB, $72, 3 YQ S43, %4 Ut 209.ot a person to “draw on” the bank. It was held in this case that the document was a bill of exchange payable on demand. ‘These cases do not furnish any detailed guidance as to the exact scope of the extended part. 3.19. To make matters clearer, one alternative would be to amend the section by express words Himiting the extended part to orders for the payment of money which are regarded as nego~ table otherwise than under the Negotiable Insiruments Act. Any instrument containing a contract to pay money,! or any other negotiable security repre- senting money which is in a form which renders it capable of being sued on by the holder of it pro-tempore in his own name and which is transferable, by custom of trade, by delivery lke cash, is a negotiable instrument.* 3.20. Thus, in England, dividend warrants.* and share warrants® have been held to be negot able instruments.* as they involve the characteristics of a negotiable instrument, ‘The following are the characteristics of negotiable instruments -— (2) Property passes by mere delivery : (2) The transferee can sue in his own name (3) The transferee, if a holder in due course. is not affected by the defect in title of his transferor or his previous holder ; and (4) The transfere is not affected! by defences that may ‘be available against previous holders". 3.21. Since a promissory note is an “undertaking”, while a bill of exchange is an “order”, docaments which merely amount to an undertaking should be excluded even from the extended =part of the definition of Bill of Exchange, There should be a tripartite transaction, namely, the perso who signs the document, the person to whom it is addressed and the person in whose fayowr it is written. A bilateral document cannot be a bill of exchange under the Negotiable ts Act®, and should not be a bill of exchange for the purposes of the Stamp Act. This 4s because the theory on which an order is based is that the person to whom it is addressed thas in bis hands moneys of the person who draws it, on terms of ‘paying’ such money according, to the direction of the drawer’ 4122. The other alternative would be to delete the extended part of the definition. Tts vague- ‘ess nbay be illustrated = In an English case**, a firm of bankers, having an account at the Bank of England for the purpose of enabling a customer to pay customs duties on goods otherwise than in cash, issued a document addressed to the cashiers of the Bank of England, Girecting them to transfer from the account of the bankers to the account of the Commissioners of Customs a sum named therein, When such a document was issued, the practice was to deal with it in one of the following two ways : (1) Tt was handed by the bankers to their customer, in exchange for his cheque for the same amount, and given by him to the Commissioners of Custom, who handed it to the Bank of Eoghand ; or 2 Sie Bah 0 Tn 5 \Gronch v, Credit Fancer, (1873) LR. 8 Q.B. 374 381. Miler v. Race, (1758) 1 Smith LC, (13th Ed) $34; Satoh Chonda, 48 Cal. 331,337, 2. Tal af Cony Bore Co. ¥.The London River Pe Dank La, ete in (188) 21 IRD: S967 B.D. 232. 4. @) Goodin v. Roberts, (1875) LR. 10 Ex. 337. Dera Bak o Esl. (846) 2 OB. westminster Bank, (1931) LKB. 173, 5, Wola Bale & Coe. Hevandbia water Co. (505) 93 LE, 339. "See aso 8. 114 0f the Companies Ac, 1936. & Compace section 114. 11. Sinmnons ¥. London Jt. Stock Bank, (1991) 1 Ch. 270, 284, On appeal (1892) A.C. 201, 215. 8. Asto the Negotiable Instruments Act, ee Hlfiz Umaradas v, Achar Bhan, AIR. 1934 Peshawar 1. 9. & Cora C3 in Buck. Robeon. (878) BD. 68, ced in Mab. Gow, 1905) LLLR. 27 Bo 10. The Committee of London Clearing Bankers v. Commissioners of Inland Reverse, (1896) 1 QB. $43. Powsible sleernatives— fret alternasive— Temitation of the extended part. ‘Second alternative ‘eletion ofthe ‘extended partAmbigaoes 20 (2) It was handed direct by the bankers (o a Custom Officer in exchange for that customer's cheque, and subsequently handed by the Commissioners of Customs to the Bank of England, It was held that the document was a bill of exchange payable on demand within the meaning of section 32 of the Stamp Act, 1891, and that it was not exempt from duty as being a “bill drawn in the United Kingdom for the sole purpose of remitting money to be placed to any account cof public revenue” within the meaning of the 10th Exemption under the bead “Bill of Exchange” in the First Schedule to the Act. The Courts were, more- ‘over, of the opinion that, having regard to the history of the exemption clause, the word “temit" only applied to the placing to its proper account money whick was already public money 3.22A. The wide scope is illustrated by the uncertainty as to whether the drawer and the arawee to a bill must be different persons in order that the bill may be a “bill of exchange” within toe definition in the Stamp Act. In a Calcutta case,? it was held that a demand draft by one branch of a Bank on another branch of the same Bank payable on demand to a third party, is a'bill of exchange within the Stamp Act. In this case, Rankin, C.J. expressed the view that oven under the definition of a bill of exchange in section 5, Negotiable Instruments Act, different persons are not required. But, in any case, such a demand draft fell within the inclusive portion of the defi- tition of bill of exchange in the Stamp Act. |As it was held to be a bill of exchange payable on demand, no duty was leviable under arti- cle 13, Stamp Act (as amended in 1927). 3.23. In a Patna case,* it was held that the drawer and the drawee need not necessarily be different persons, zs “This specific aspect will be dealt with Inter, But the more important defect is the uncertainty discussed in the judgment of Rankin, C.J.4. The present defizition, if taken literally, is unduly wide. it was, therefore, suggested to us that the definition should be confined to a Bill of Exchange a6 defined in the Negotiable Instruments Act, as there is no great consideration of revenue necessi- (ating 2 charge of tax on other documents. The law, it was stated, will gain in simplicity of form vy the suggested amendment. Mention of ‘Mundi’ should, no doubt, be retained. It was also Suggested that it would be convenient if, as regards cach of the ingredients of a bill of exchange, ‘es defined in the Negotiable Instruments Act, a decision is taken as to which of them should be dispensed with in the Stamp Act. 3.24, While we have carefully considered the suggestion, we have come to the conclusion nat instead of amending the definition, it is better to mitigate the consequences of its vagueness Uy amending section 35. By narrowing down the definition, one might exclude documents intended w be covered by the extended part. While we do not recommend any amendment in the definition of ‘bill of exchange’, we do recommend that in section 35, Proviso (@), the exception should be confined to bill of exchange of promissory note as defined in the Negotiable Instruments Act or “sundi—even if the exemption ws retained at all. 2.25, There is another question to be considered in connection with bills of @xchan document can fall both tnder bill of exchange-and under a promissory note, 48 ‘io Negotiable Instruments Act.*, at A 1. Seo also Buck v. Robson, (1878) 3. QBD 686; Brice v. Banninser, (1878) 3 QBD. $6. - 1 nanan of the Stamp Act, ALR. 1928 Cal. $66. (8) (Reference under section 57, Staep Act. Gas, aN : 13. Bibi Kasml Begum v. Lacknon Lal Sao and Others. ALR. 1930 Pat. 239. 4. inthe matter ofthe Stanp Act, ATR. 1928 Cal. 566, 70, 55 For action under section 35, provisos). 6. Section 17, Negotiable Instruments Act,a Where an instrument may be construed, either as a promissory note or bill of exchange, the holder may at his election treat it as either, and the instrument shall be thence-forward treated accordingly. ‘The relevant section in the Negotiable Act reads— “17. Where an instrument may be construed either as 2 promissory note or bill of Amblgioas exchange, the holder may at his election treat it as either, and the instrument shalt ‘™=¥0et be thence-forward treated accordingly.” 3.26. This privilege is not taken away by section 6 of the Stamp Act; and if the holder Resamemndation ‘teats the documents as a bill of exchange, then that election governs the position for the (Ssitaw'whh purposes of the Stamp Act also. This should be made cess, and we recommend accordingly. etree ‘Negotiable Trorameats Act, 3.27. We may now discuss the question of demand dratts. It appears that with reference Demand draft, to the Negotiable Instruments Act (which defines the expression “cheque”), there Js some con troversy as to whether a demand draft drawn by a banker on his own branch is o is not a bill of exchange and a cheque. This controversy has arisen because, while sections 85A and 131A of twat Act make Timited provisions in regard to demand drafts for the protection of bankers, the ‘Act does not contain any comprehensive provision as to drafts. ‘This has led to a controversy. The High Court of Bombay* has, for example, taken the view that a demand draft issued by a bank on its branch or vice versa is not a cheque or a bill of exchange. Some other High Courts? have, however, held that it is a bill of exchange, and is very early allied to a cheque, LE - 73.28. It would appear that, in England, the House of Lords* held, in 1903, that since the Bigish case, -apik is both drawer and drawee, the draft drawn by a country branch of the Bank on the head F office cannot be treated as a bill of exchange, as defined in section 3 of the Bills of Exchange ‘Act, 1882, as it then stood, This judgment of the House of Lords dealt with other points also, and led to the enactment of the Bills of Exchange (Crossed Cheques) Act, 1906 It is because of this aspect of the case that the Bombay High Court made a distinction between @ bank draft on another bank and a bank draft on another branch of the seme bank. In this connection, it would be of interest to note that in the English Stamp Act.* a bill of exchange is defined as including a draft, order, cheque and letter of credit and certain other documents. This suggests a useful improvement in the definition of “bill of exchange” in the stagp Act, namely, that it should include a draft. We recommend that the definition should include rafts. fi 3.29. a the light of the above discussion, we recommend that the definition of “bill of ‘Recommendation exchange” should be revised— sors dea, G) by including drafts, and GG) by adding the following Explanation “Explanation = ‘The provisions of section 17 of the Negotiable Instruments Act, 1881, apply for the purposes of this Act as they apply for the purposes of that Act.” 1. (@ Sanyasalingara v.The Exchange Bank of India, NTR 1948 Boze, | (Coyaiee J). ©) Hearanoo v, Notesa Mucisliar, ALR. 1959 Bom. 267 (Mudhohh, 1). 2 (a) Supanchand v. Arohmayya, ALR. 1951 Mad, 910 (D.B). E (b) Sacha Nath v. Punjab Natfonal Bank, ALR. 1960 All, 23. (©) State Bank of India v. Mazwndar, ALR. 1970 Cal, $03. 3. Capital and Counties Bank. Gordon, (1900) All E.R. (Reprints) 1017, 1024 (HLL), 4. See Undermood Limited v. Bark of Liverpool, (1904) Al E.R. (Reprints) 203, 24%; 131 Law Times 27k; 68 Sole ton Journal 716 5, Section 32, Stamp Act, 1891, ‘Mol Lawi77—4,2 We may add that chese two changes have been mostly favoured: in the replies to the relevant question in our Questionnaire. Recommendation 3,30, We are further of the view, for reasons already stated,? that in section 35, proviso (a), Fprcingeecion 1. exception should be confined 10 bill of exchange or promissory note as defined in the Nego- tuable Instruments Act or a Hundi’—if at all the exception is retained. ‘This recommendation also bears the support of the majority of the replies to our Question naires SHAS. 32: While section 2(2) dines bil of exchange, section 2(3) defines “a bill of exchange Sade pavable on demand”. The first is generic the second is specific. The distinction between a bill Semand. of exchange payable on demand and a bill of exchange not so payable is material for the purposes of stamp duty.! As from Ist July, 1927, bills of exchange payable on demand are not chargeable with any stamp duty, the relevant portion of article 13 having been deleted in 1927, Bill of exchange payable otherwise than on demand are chargeable with the duty specified in article 13. iy 4.32, The definition of “bill of exchange” in section 2/2) refers to the Negotiable Tnstra: Stead" ia the ments Act. But section 2(3) does not refer to that Act. Under the Negotiable Instruments Act, Negotiable. a bill of exchange payable on demand is one® which is expressed to be so pavable, or in. which ro time is fixed for payment. This is not provided in the definition section. but in section 19 of that Act. Further, the expressions “at sight” and “on presentment” in a bill of exchange mean “on demand”. Nap to Kaa 43.33. Tt is to be borne in mind that section 2(3) does not expressly provide in what cases SESERE a bin of exchanze, at defined in sub-section (2), becomes payable on demand. Apparentty, Imstgmgpt Act, secking the answer to this question, one has to draw up the concept of “on demand” in the Mego- sealoh TD ioe, tble Instruments Act, mentioned sbove. This is because the definition in the Stamp Act, ~ ton 2(3), is merely intended to include certain other documents which may or may not TENT under the generic concept of “bill of exchange” as defined in sub-section (2). Tn a sense, this is a defect in the Stamp Act, inasmuch as one is driven to consulting the Negotiable Instruments Act without any express direction to that effect. This defect shoold be removed by suitably referring to section 19 of the Negotiable Instruments Act. Deft ia 333A. Tt may be stated that in England, the definition of bill of exchange? In the pee Stemp Act is a self-contained definition which, whatever its other peculiarities, does not guffer from the anomalous situation of the generic definition in the Stamp Act referring to the Nego- ‘Hable Instruments Act and the specific definition in the Stamp Act not referring to the ‘Ne snstruments Act. Liesfiod efecto 2.34, Section 2, sub-section (3), provides that “pill of exchange payable on demand” in- secbon 2G) cindeg the documents specified in clauses (a), (b) and (c) of that sub-section. This does not, ‘of course, mean that the cnumerated documents fall within the general definition of bill of ex- change. All hat sub-section (3) achieves fs the limited result of bringing them within the definition ‘of “bill of exchange payable on demand”, Section 20), 1335. As separds the documents specifically mentioned in the section, it it to be noted that se ctanse (a) extends the concept of “bill of exchange” “payable on demand” in respect of s docks exer for spent for the payment of a sum of money ont of a particular fund which may or may not be a sreaiteble or upon an uncertain condition or contingency. The definition of “bil of exchaage” 1. Question 3 of the Questionnaire. 2. See spre. $3. For action under section 35, proviso (@) 4, Question 3 of the Questionnaire. 5, Seoarticle 13. 6 Section 19, Negodable Instruments Act, 7. Section 21, Negotiable Fastrumente Act 1881. 8, Seaton 32, Stamp Act, 1891, as amended by the Finance Act, 1961,23 fn the Nogotiable Instruments Act* is, on the other hand, confined to documents which are pay- ‘able in all events,—see the words “unconditional order” used in that deficition. This shows the ‘contrast between section 2(3), clause (a), on the one hand, and the Negotiable Instruments ‘Act on the other hand, 43.36, Then, section 2(3), clause (b), includes an order for the payment of a sum of money Section 3), at weekly, monthly or any other stated period. The expression “bill of exchange”, as defined in Sause (OE the Negotiable Instruments Act, may not cover such documents,—though that Act has been in- corporated to cover an order for payment in instalments.* 3.37, Lastly, clause (c) of sub-section (3) includes a letter of credit,—‘that is (0 589, gesion 20, ‘any instrument by which one person authorises another to give credit to the person in whose leuye favour it is drawa”. As regards siamp duty on letters of eredit of credit, the matter is governed ‘ter of eredit ‘not by the article prescribing the duty tor a bill of exchange,* but by a separate and specific provision’, ‘According to Story,” a letter of credit, “is a letter of request, whereby one person (usually a banker) requests some other person to advance moneys or give credit to a third person, named ‘therein, for a certain amount and promises that he will repay such sum to the person advancing ‘te same or accept bills drawn ‘upon himself for the like amouct. It is called a ‘general (cr open) letter of credit, when it is addressed to all merchants or other persons in general ; and it is called a ‘special letier of credit’ when addressed to a particular person, requesting him co make such advance to a third person”. 337A. For the purposes of stamp duty, letters of credit were, prior to Act 5 of 1927, Duty oa letter ¢preaned by Article 13(a) which specified a charge of one anna on them: But there is now a % = weplitete and specific provision in Article 37, under which’ the duty payable on a letter of credit is que rupee.” The inclusion of such letters in the definition of “Bill of Exchange payable on Acznam” is, thus, of no effect as regards the rate of samp duty. The higher duty under Article 37 ‘is payable on such letters. In this connection, section 6 is quite clear. 3,38. But a letter of credit has to be treated as a bill of exchange for the purposes of Effect of section section 35, with the result that it is rendered inadmissible in evidence even on payment of penalty, 25 Proviso (@) ‘because of the bur under that section.t ‘Thus, the result of its being included in the definition of ‘bilh‘of exchange payable on demand—section 2, sub-section (3)—is that it attracts the prohibi- ‘dan, contained elsewhere in the Act, under which an instrument which is a bill of exchange ‘cannot be admitted even on payment of penalty, if it is originally unstamped. 239, The present poston s rogars Teles of credit is not satistctory. Tt is likely to -Mecoppmdaon mislead, as it creates the impression that the duty thereon, is the same as on a bill of exchange, ‘2 wuakeas-one bears in mind number of provisions referrey! to above. If at all the definition of “ill of exchange payable on demand” is to be retained, then— Gi) “Teter of credit” should be excluded from that definition ; and Gd in section 35, Proviso (a), “letter of credit” should be expressly mentioned. ‘This will simplify the law. ‘The replies to our Questionnaire also generally favour it.*® It should be pointed oot that our recommendation in. relation to letters of credit is confined 1 the Stamp Act, and we do not express any opinion on the question whether, for the purpotes ‘of the Law of Negotiable Instruments or for the purposes of any other branch of the law, Jeiters of credit should or should not be regarded as bills of exchange. Becton 5, Negotiable Instramoats Act, 1881, 2 Latahont Dastv. Letha Ram, A.LR. 1935 All 410, 3 Ante 13. 4 stile 37. 5. Bee bra. (6. Story on Bills of Exchange, section 479. 1, Artele 37 as amended by Act 36 of 1976. 4, Section 35, Proviso (@). 9, To be carried ont under section 35, Proviso (a). 10, Queation 4,Stasap dary. ecomapndation Fite ee Py 3.39A. To sum up our recommendations concerning matters arising out of the definition ‘ot “bill of exchange payable on demand” — (a) the definition* should refer to section 19. Negotiable Instruments Act, 1881, as to the meaning of “on demand” ; (b) letters of credit? should be excluded from the definition, and should be included in section 35, proviso (a), Exception, if the Exception is to be retained. 3.40, Section 3(4) defines a “bill of lading” as including @ through bill of lading, but xs ‘not including a mate's receipt. A bill of lading is a document acknowledging the shipment of goods, signed by or on behalf of the carrier.* {It serves three functions+— (i itis a receipt for goods delivered to the cartier ; Gi it normally embolies the terms of the contract of carriage ; Gi) it acts as a document of title to the goods. A through bill of Tading denotes bill of lading issued in cases where goods are to be carried for a portion of the journey by land, upon conveyance belonging to some person other than the ship-owner, Subject to certain exceptions, a bill of lading is conclusive evidence of the shipment of goods as against the master. ‘A mate's receipt is a less formal document than a bill of lading, When the goads are shipped, the acknowledgement first given is a less formal receipt, known as the, mate's regmigt. Tt is afterwards exchanged for a bilt of lading. St is mot a document of title, while a bil of Tading is a document of title.* 7 3.41. In England, there is no stamp duty on a bill of Inding.” In India, under article 14, a bill of lading, including a through bill of lading, is charged with a'duty of 25nP. There is, however, a remission granted by notification made under section 9, in respect of inland bills of lading,* and there are also two exemptions under artcle 14 itself. ‘A bill of lading need not be necessarily in respect of carriage by a sea-going vessel. It ‘can be in respect of inland navigation also* But, as already stated, the duty on an inland Wif.of Jading bas been remitied,'° by a notification” issued under section 9. 3.42. In view of the likely increase in inland water transport in the future, this ‘remission ‘granted by notification should be incorporated in article 14 of the Schedule (relating 4 the ‘amouat of duty on the bill of lading). The replies to our Questionnaire also favour iti}? But the wording of the notifcation™® granting the remission is not scourate in one reqpéct. ‘The notification remits the duty in respect of “a receipt or bill of lading issued by w railway company or admiaistration or an Inland Steamer Company for the fare for the conveyance of ‘passengers or goods of both, or animals, or for any charges incidental to the, conveyanéo.theseot for given to such Company or Administration or Inland Steamer Company for the refund of ‘an overcharge made in respect of such fare or charges.” 1. Para, 3.33, agra. 2 Para 3.39, sora. 13. Gladwell. Vell (1786) LT.L. 216, cited in Suvens, Mercantile Law (1965), pans 340. 4 Smith & Kecnan, Mercentie Law (1969, page 24, 5. Stevens, Mercantile Law (1969), page 6 Stevens, Mercantile Law (1969), page 344. 77, Monroe, Stamp Duties (1964), page 196, & See Below, for élscusion about tbe notification granting remission. 9. Reference uncer the Stamp Act, (1903) LLLR. 30 Cal 563. 10. Governmeat of India, Notification No, 6, dated 148-1937. 11. The relevant portion ofthe notification is quoted Jai, 12, Question 5 of the Questionnaire. 13 Government of India, Notication No, 6 dated 148-1837,25 The emphasis on fares is not required, in relation to w bill of lading. A bill of lading is not concerned primarily with the fare. It records the contract of shipmeat, evidences the receipt of goods and is a document of title. Fare is merely an incident of the contract. Hence, while incorporating the substance of the notification as an exemption under article 14, the defect {in the language should be attended to. 3.43, Im the result, no changes are needed in the definition of “bill of lading”. But 2 Recomméedation. ‘change is recommended in Article 14, as stated above. To be cared out ender anicie 14‘Senta 2540). CHAPTER 4 DEFINITIONS IN SECTION 2(5) TO 2(10) 4.4. The definition of “bond” in section 2(5) is as follows : (5) “ond” includes— (a) any instrument whereby a person obliges himself to pay money to another, con condition that the obligation shall be void if a specified act is performed, co is not performed, as the case may be j (b) any instrument attested by = witness and not payable to order or bearer, whereby 2 person obliges himself to pay money to another; and (c) any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another.” 4.2. This definition consists of three parts, which may appear somewhat heterogeneous. The common element in the three clauses of the definition appears to be that of an “obligation”, because the word “obliges” appears in each of the clauses. It can also be said that the obligation should be either to pay money or to deliver grain or other agricultural produce. Clauses (b) and (c) also require attestation, which is not sequired in clause (a). At this stage, we are ‘mestioning these salient festures in order to bring out the general idea of the definition and such characteristics as can be usefully emphasised. 43. It can be stated that & bond is a kind of agreement, and but for the specific provision charging duty on a bond,! such instruments would have been chargeable under the generic Brticle relating to agreements.” It is only because of the specific provision charging a higher duty fon bonds that a bond has to be distinguished from an agreement, and it is from that point of ‘wew that the definition of “bond” assumes considerable practical importance. It may be convenient 10 mention here that clause (a) of the definition refers to what are known in England as double or conditional bonds. Clause (b) of the definition refers to simple money bonds. Clause (c) refers to simple commodity bonds. ‘So much by way of introduction, We shall now procéed to deal with specific points com cerning each of the clauses. 4.4, As regards clause (a) of the definition, questions arise as to in what circumstances agreements with penalty clause can be regarded as “bonds”, particularly because of the provi- sions of section 74, Contract Act, which give relief against penalty. Some decisions* take the ‘new that a covenant with a penal clause cannot be # “bond” under clause (2). Against this view, it can be argued that Ilustrations (a) and (g) to section 74 of tee indian Contract Act do use the word “bond”, thus indicating that a “bond” in the genedal sense fan have a penal clause, The true test under the Stamp Act, however, is, whether the to pay money is the primary and immediate aim, or whether that is only « sanction to tmnother obligation which docs not relate to the payment of money. Apert from case ‘dum on theit special facts! this seems to be the general poritioo, In any case, the practical 1 Arte 15, 2 Article 5. 3 @) Glborme & Co. ¥. Subal Bowl, (1882) LLLR. 8 Cal, 284, 296. {@) Collector of Rangoon ¥, Hoang Aurg Be, ALR. 1916 LB. 100, 101. 4, Brg. Nand Laly, Ravers Chand, ALR. 1920 Lab, 481. % aa27 portance of clause (a) is small, having regard to the comparatively infrequent use of such orm of bonds in Indian convevancing practice. 45. Tt has been suggested to us that In clause (2) also, attestation should be required as in clauses (b) and (c). The common elements of ¢ bond, it was stated, would be (i). an obli- gation, and (ii) a formal element of attestation, and it was stated that there was no reason why, 1m ctause.(2) also, the formal element should not appear. In this connection, reference was also made to a Lahore judgment’ and the observations made therein while considering the question whether a certain document was a “bond” within the Limitation Act. The Limitation Act? defines a “bond” as follows : (4) “bond” includes anv instrument whereby a person obliges himself to pay money to anoiher, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be.” Shadi Lal, C.J., examined the definition in the Stamp Act also. and made the fotlowing comments :— “From the foregoing. it is clear thar the definition of the term “bond” even in the present Stamp Act ic not exhaustive, and that the term in the course of vears has been extended so as to include instruments which might not have fallen under . the earlier definition. Indeed, it is difficult to understand why in the instruments . described in clauses (6) and (c). attestation should he regarded ax essential and ' not $0 in the instruments described in clause (a)."* . 46, We have carefully considered the suesestion. But. »* no practical difficulty has been caused by the present position, we do not think it necessary to accept the suggestion. 427. This takes us to clause (b) of the definition of “bond”, That claure includes “any ‘instrument attested by a witness and not payable to order* or bearer. whereby a-person obliges: ‘ittsett to pay money to another” This clause requires two positive conditions, and,,ope nogative condition, The positive conditions are that the instrument— (G) must be one whereby a person obliges himself to pay money to another; and Gi)_-must be attested. ‘The negative condition is that it must not be payable to order or bearer. We stall fist ecuss the posi conditions, 4f. The crucial word in clause (b) of the definition is the word “obliges”, and. therefore, no document can be a “bond” unless it is one which,’ by ftself, creates the obligation to pay the money. ‘The obligation, it is generally held. should not, therefore, be a pre-existing one. “Where the already exists, a subsequent document merely reproducing the nature of the obtige- tion’ acs ‘not itself create a fresh obligation and therefore, for the purposes of the law of start, {¢ remains an “agreement” ; and does not come withia the definition of “bond # 49. On the same principle, that fs to say. in the absence of words expressly cteating. an Hoa, courts generally take the view that an-entry in the books of account of the plaisaft, hfe btknowledees a debt and is signed by the debtie, Is not necessarily a bond. | Hf Jt is 8 mete belance struck, it is an acknowledgment; if ft is followed by words like “baki dena’,-it 1. Hidhawea Mal v. Karim Baksh, ALR. 1925 Lahore 415 (Shadi Lal, C3. 2, Seqtion 2), Limitation Act, 1963, 3, Empbasis added. 4. Hiralal v. Quesn Empress, (1895) LL. Calcutta 757. 5. (@) Mol Dhan Gupta v. Board of Revenue, (1959) Allahabad Law Journal 383; (0) West Coare Eeetroploring Company Lid. v. Sreedharan, (971) Kerala Law Tienes 383 Whetherwin ‘note. 28 amounts to an agreement; and if it embodies a promise to pay, it is chargeabio as a bond’ if the other formalicies required by the definition of bond are present. ‘The other positive condition is of attestation—a solemn formality. 4.10. So much as regards the two positive conditions in clause (b). The negative condition ‘requires that the instrament should not be payable to order or bearer, the object of this require ‘ment being that if the instrument is payable to order or bearer, it could fall under the definition ‘of “promissory note”, which is governed by special charging provisions and other special pro- visions. ‘A comparison with the definition of “promissory note” would be useful at this stage. ‘Under the Stamp Act,* a promissory note means a promissory note as defined by the Negotiable Instruments Act, 1881. The definition also contains an inclusive portion, but that portion is fot relevant for the present purpose. Under the Negotiable Instruments Act," a promissory rote is an instrument in writing, containing an unconditional undertaking to pay a certain sum cof money only to, of to the order of, a certain person or to the bearer of the instrumeat. No doubt, there are some instruments which do not amount to bonds within the Stamp Act, epause they are not attested as required by clause (b), ‘There are, on the other hand, some dootments which do not amount to ‘promissory notes’ under the Negotiable Instruments Act, because the sum is not certain or the undertaking not unconditional. 41, There are diferences as well as similarities between monds and promitory-aai6. In the fist place, a promlssory-note, in its proper and legal form, could not well be confounded ‘with a bond under clause (2), i., a bond with a condition, for such a promissory note must be “an unconditional undertaking”; nor could it be mistaken’ for a bond under clause (c) to deliver grain, as the subject of a promissorg-ncte can be “money only”. [As to simple bonds for money falling under clause (b), such bonds could not be mistaken for promissory-notes executed in the ordinary form, ic., payable to ‘order’ or to ‘bearer, which ‘constitutes their negotiability, because instruments so worded are expressly excluded by clause (b). 442, A further distinction between a ‘bond’ as described in clause (b) and = promissory ‘note which is not expressed s0 as to indicate negotiabllty is sometimes thus stated. The language ‘of a bond indicates an “obligation”, while thet of a note constitutes « “promise” or undertaking to pay. But this distinction, though easy to formulate in theory, proves difficult in practi. ‘The distinction between these instruments when losely worded, is often difficult to tmee. | There are situations where a document can fall under boh. If there is, in an instrument, an uncond- ional undertsking to pay money to a specified person, and the instrument is atteated, it wilh Drima fact, fal under both the definitions, Le. the definitions of ‘promissory note’ and “bond. 4.13. An objection could be raised that since the instrument is not expressed to be payable to order or bearer, it falls within the definition of ‘bond’, because the negative reqeirement in that definition is not fulfilled. But, as to this objection, dation mast be iin f wits 13 fof the Negotiable Instrument Act One of the Explanatious to that section (as 1919) provides (in effect), that a bill of Exchange, pronote or cheque payable ne person fs to be regarded as payable to his order, unless there aro provisions, retiling te Prrmsferability. It is this provision which has caused some controversy. Is this provision in fection 13 of the Negotiable Instruments Act to be read for the purposes of i s0- tion 2(5)(b)» Stamp Act, (Le. the portion referring to ‘not payable to order of oF is It to’be disregarded for the purposes of the Stamp Act ? Tee 77 Ganda, 35 Panjab Records 1908 (Pull Benet) et aa aa ale, 972) Mae Pradesh Lam Dural 3 Dulabh y. Rahman, ULAR, V4 Bornbay $11. S. section 4, Negotiable Instruments Act, 181.0 & Section 13, Negotlab lastruments Act (as amended in 1919).29 Thus, a pronote payable to X is, under the amendment, to be regarded as payable to XK or order’ (by viriue of the Explanation), if thore are, in the instrument, no words prohibiting transfer or indicating an intention that ic shall not be transferable. A promissory not ‘payable to A’ was not regotiable before the amendment, But, after the amendment, by virtue of the Explanation, the words ‘payable to A’ mean ‘payable to A’, of order, and such a note is thus rendered negotiable, unless it is expressly made ‘payable to A only’, thereby prohibiting its transfer. 4.14. The history of section 13 of the Negotiable Instruments Act, referred to above, is of interest. To be negotiable, 2 promissory-note, 2 bill of exchange or a cheque must be made payable to order or bearer under the section. Even if i: was not made expressly payable ‘to order or bearer’, the custom and usage of meschants in Bombay recognised! a cheque from which the word "boarer' was struck out, and the word ‘order’ was not substituted therefor, as an ‘order’ cheque ‘and, ax such, negotiable. In a Bombay case,? however, the High Court refused to recognise this custom as, if recognised, it would have the effect of overriding the express provisions of Iaw'in section 13 of the Negotiable Instruments Act, (as it then stood). This decision caused ‘a great deal of hardship to the mercantile community, and to remove the hardship, an Explana- tion was added to section 13 of that Act, by an amending Act (Act 8 of 1919) to the following effect “Explanation .—A. promissory-note, bill of exchange or cheque is payable to order which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transfer- able.” 4.15. The question whether this provision (ie., the amendment in section 13 of the ‘Negotiable Instruments Act) is to be read for the purposes of the Stamp Act also, has caused ‘8 Giference of opinion amongst the High Courts," as elso amongst the Judges in the same High ‘Coat The documents involved in the cases before the various High Courts did not contain the words ‘or order’. The question arose whether the provision (that the instrumen: must not bbe guysble io order or bearer), was satisfied. Answer to the question depended on whether the above provision of the Negotiable Instruments Act, as amended, was, or was not, to be taken Into account for the purposes of the Stamp Act also. Several shades of view seem to be current on the subject— (1) Section 13, Negotiable Instruments Act (as amended in 1919), is to be read for the purposes of the Stamp Act also, and, therefore, an instrument containing an unconditional undertaking to pay to a specified person, if there is no express restriction on transfer, is to be exclnded from the definition of ‘bond’, as it is to be treated as payable to order, though not so expressed.* (2) Section 13, Negotiable Instruments Act is not to be so read, as the section is intended to define what is a ‘negotiable instrument’, and is nor relevant to the definition of ‘bond’ for the purposes of the Stamp Act.® 1. @ Bibi Kazmd Begun v. Eactman Lal Sao, ALR. 1930 Pat. 239. 240. (©) Guar. Nashmal, AR. 1932 Nag. 23, 25. (©) Raweldes v. Tanabai, AUR, 1929 Nag. 274,275 (@ Forber, Forber, Campbell and Co. v, Offi Assienee, Bombay, ALR. 1925 Bont 173, 2 Desabhal¥. Virchond, ALR, 1919 Bor. 73. 3, See the casey reviewed (@) Kadorfalv, SubMfal, ATR. 1968 MP. 4, 8. 9, perworaphs 10 to 12 (Golvalkar end Bhave 33}. (©) J. Sobah ¥. MH. Gandy, ALR. 1773 Bom. 77 4, EG, Raja Rojeshwer! Debi, ALR. 1989 Al. $83 (FB). 5, Kadorillv. Sukiial, ALR, 1968 M.P. 4 (D.B). 6, (@) Khetra Mohan v. omini Kanca Deven, LR. 54 Cal. 445; ALR. 1937 Cal. 472; (©) Ram Narayan. ALR. 1962 Pat, 325, 29 (Ramaswae, C.). snd Chaudhary, J), (@ ALR. 1973 Bom. 27 24M of Law i775 Question of applicallicy tp Stamp Act of amended setion T3—ehades ofRecommendation ‘garding ection Recommendstion regrrdiog ‘cause Seton 26546)— Siipwlation for delivery in pursuance of an Sareement 30 (3) The matter mus. be determined on 2 consideration of the intention of the partes Did the parties intend the instrument to have the commercial character of @ promote, or was it the intention only to record the obligation by the party undertaking to pay ? In a case which went up to the Privy Council,! this test was applied, and, in his usual forceful way, Lord Atkin described the anomaly that would arise if the net of negotiability were cast wide.® (A) Negotiability is not a pre-requisite of the document being regarded as @ pronote, for the purposes of the Stamp Act! Section 13 of the Negotiable Instruments Act (as amended) should be taken into account, for the purposes of the Stamp Act also. From the discussion in a Gujarat case,* and in a Bombay case, it would appear that this controversy is still subsisting. A clarification js, therefore, desirable. 4.16. In order to clarify the position, we revommend that the words “expressed to be”, should be added in clause (b), before the words “payable to ordet or bearer”. Though it coule be argued that to treat such a document as a bond, would create disharmony betwoen the Stamp ‘Act and the Negotiable Instruments Act, we are deliberately making this recommendation, in view of the fact that if the document is regarded as a promissory rote, then® the document ‘cannot be admitted in evidence under the existing law, cven on payment of the deficiency and penalty. We do not sce any strong reason why the category of documents not admissible on payment of penalty should be enlarged. 4.17 We, therefore, recommend that clause (b) of the definition of “bond” should be revised 50 as to read as follows :— “(b) any instrument attested by a witness and not expressed to be payable to order ot bearer, whereby a person obliges himself to pay money to another.” 4.18. Clause (¢) of the definition of “bond” includes any instrument attested by a witness “whereby a person obliges himself to deliver grain or other agricultural produce to angeher” ‘There is a conflict of decisions on the question whether an attested instrument containing -@ stipulation for the delivery of grain or other agricultural produce in pursuance of ax agreement for the sate of such article is a “bond” within this clause. ‘The majority view is that such ap jnstrument will be a “bond”, and chargeable as such.’ ‘Thus, in a Bombay case," it was held, following an earlier decision,* that an ordinary agreement for a sale of a crop or mortgage of a crop becomes a bond if itis atesied by witnesses. The attestation is necessary characteristic Of the bond, but it is not an essential characteristic of 2 document incorporating mortgage of trop of sale of crop, as the validity of these transactions does not depend upon the attestation ff the document, and they can be carried out by documents which are not attested. Aad the ond is the basis of transaction over which is superimposed a transaction of mortgage er sale and in such a ease, the document shares and retains the character of a bond along with the Chardeteris- tics of mortgage or sale respectively ‘The other view is that the obligation to pey money and the obligation to deliver crops is incidental to and is a necessary part of the mortgage of crop or of the sale of crop respectively, and, in a transaction of mortgage of erop of of sale of erop, the element of bond, if there be any, “Aian Shagh, AUR. (93EP.C.171 hard AU. oe LR 1941 Nag. ‘968 Gu). 1, 5.6, paragraph 5 (Bhagwati and Shaky 33.) 1252 (A.D, Desai and D.P, Desa, JD) i lek Abr cn 2 sec also Gaupls 3. Deeds: Gam, ALB. 2 eon «tor Ba, ALR 197 Gurl $ Rin ton zpom- 21 6: Sesion 35, Provo (0 Fen os (308 3 Bor. LR. 234, 38 BD. (fart Bok 1889 Bo. P35 Orga Singh 138) LR. 9 A 385, SB: - Oe Cate tn Math AAR. 94 Al, 24,241, 257,28 (Majoriy ewe Vern toes: (oes Nimary. Lakstnchna, AL 1937 Nap. 7278, 7% 8 feve Bat rotors (1906) 8 Bom. 1-B_24 3 Ranch» Bork, (1888) BoP 257 SBD.31 is entirely submerged in the transaction of sale or mortgage, and it is unnatural language to describe a transaction of a sale or mortgage of a crop as a bond, simply because there happens to be an aitestation of the document, and in such a case attestation may well be regarded as surplusage, ‘The obligation to pay money and to deliver crops are exclusively referable to sale land mortgage transactions, and they should not bo treated as independent covenants furnishing the basis of a bond. There is high judicial authority in support of either of these contentions. In a Full Bench case of the Bombay High Court," atter expressing a doubt whether the real Intention of the Legislature was being carried out by interpreting the (ransaction in the manner in which it did, it has been held that a document recording a sale of goods if attested becomes 1a bond, and ceases to be exempt from duty and becomes liable to pay duty as on a bond. ‘Tho judgment of the Court (which was delivered by Sir Lawrence Jankins) contains 20 iseussion of law, and is based upon a previous authority of the Bombay High Court, to which the Court held itself bound. ‘The Full Benches of the Madras High Court? and Bombay High Court® have held that a document resembling 2 promissory note, if attested, becomes a bond. 4.19, Tt should, however, be noted that the Bombay High Court has, in a later decision, held that the agreement in order to come within the definition of bond, must constitute a debt, and must be capable of specific performance, ‘That case related to an agreement to lend money ty a partnership. It was held that such an agreement does not create an obligation to pay money within clause (b). The reasoning was that an agreement to lend money is mot capable of specific performance, and it creates no debt though its breach may give rise to a claim for damages. ‘The matter has come up more than once before the Allahabad High Court. In a case? decided in 1936, the executant, who bad received moncy from the other party, had mortgaged his sugareanc. ‘There was another stipulation that the executant would supply the sugarcane exclusively to the sugar works of the mortgagee. The later stipulation was regarded as a bond, being wholly epart and separate from the mortgage. Ta the same case, however, a stipulation to deliver in pursuance of sale, contained in another document—which was the third documeat in the case—was excluded from the definition of “bond”. 4.20, In a case,* decided by the Allahabad High Court in 1941, the document in issue (being attested) was, on the facts, held by a mojority of the judges’ to be a bond. The minority? dis- sented, on the ground thel the obligation’ (o deliver grain was only incidental. According to the majority, however, this test was irrelevant.* Jn document to be a bond) has been taken in a later Foll 230 ‘The same view (holding sue Bench case of the Allahabad High Cour Tn many of the eases cited above, the question whether the document would be exempt under article $ by virtue of the exemption under that article in respect of an agreement for the scale of goods, has also been debated, That controversy was (no doubt, of importance er the actual decision in cach cass; but that controversy should be Kepr apart for the pressat purpose, because, even if the document is exempt under article 5, the main question (0 be Brat determined is about the scope of section 2(5) (c)—bond” Inve Bll Bros, (1906) 8 Bow. LR. 234 Inve Reference umder Stenip Act. (i887) LLAR. 10 Mad. 158.(F.B, er Se A penaiane (195) ER. 29 Hom, £2; 6 Bore Le M4) WE ae “gop 1. 33 Bor. 436 (Scott, C.J), Bachelor aod team, 2.) Htiawardhak, Cotton Mills x. Sorabi, a m2 avr ator Ma gh 2 G3 upon Haig we ine Rar of Ree 0 tot Al, 28, 2,298 28-272 27 fea Ab Ap C-Mod Dae | Verma and Balpal 35. : ere Tia, Tabat Ahmad, Ag. C2 udsments page 2° BO SSRET por Pino, ALR. 1957 AN 3245 93+ PE nee) yeseraeeel32 Recmmmendation 4.21. Here, ous does find oneself in ciemma, If an obligation to deliver grain ete. relating to clause arising under an agreement on sale is excluded, then there is very little scope left for clause (c). ‘An Agreement to deliver grain under a hypothecation bond would, of course, stil fall within clause (c) (if the document is attested), but an instrument containing such an obligation ‘would be chargeable a> “marigage of a crop,* and would not raise conttoversy in practice. Ik is desirable that the legislative policy on the subject should be indicated more clearly. One alternative woukt be to modify clause (c) So as to exclude eases where the obligation is in pursuance of un agreement to sell the grain oF produce. The opposite akernative would be to include such cases. Attestation will, of course, be required, as at present. Which- ‘ever alternative is preferted, the position regarding chargeability of the document would not be governed entizely by the definition of bond. Reference will also have to be made to atticle 15, tnd to the case law on atticle S. ‘The object in suggesting an amendment of section 2(5) (c) is oaly to clatify the position with reference to the definition of “bond”. Recommendetioa. 4,22. We are of the view that the first alternative should be preferred, since it is unrealistic to include such agrecments within “bonds”. An Explanation should, therefore, be added to clause (c), to the effect? that an agrecment containing # stipulation for delivery of grain ot other agricultural produce in pursuance of an agrcement for the sale of such article does not amount to a bond wrhin the definition in the Stamp Act. Section 23) and 4.23. Section 2(5)(b) and 2(5)(c) use th: expression “attested”, but there is no defini suestaton. “tion of that expression in the Stamp Act. There is a definition of “attestation” in section 63(c), Indian Succession Act, 1925 (39 of 1925). This is a reproduction of the defiaition of the terme as given in the earlier Succession Act. ‘The definition of “attested” in the Indian Succession Act is a8 follows? :— (co) The will shall be attested by two or more witnesses, cach of whom has seen the testator sign or affix his mark to the will or has seen some other person sign the will in the presence and by the direction of the testator, or has received from the testator a personal acknowledgement of his signature or mark, or of ‘the signature of such other person; anc cach of the witnesses shall sign the will in the presence of the testator, but it shall not be necessary that more than fone witness be present at the same time, and no particular form of attestation shall be necessary.” 4.24, In the Transler of Properly Act, there is 2 definition of “attestation”. The definition in the Transier of Property Act® is quoted below “attested”, 1: relation to an instrument, means anc shall be deemed always to have ‘meant attested by two or more witnesses cach of whom has seen the exeeutant sign or aiix his mark to the insirument, or has sccn some other person sign ‘the instrument in the presence and by the direction of the gxecutant, or has received from the executant a personal acknowledgement of his signature or ‘mark, or of the signature of such other person, and each of whom has signed the instrament in the presence of the executant; but it shall not be necessary that more than one of such witnesses shall have been present at the same time, and no particular form of attestation shall be necessary.” 1. article 41. 2. This is nota draft. 3, Indian Succession Act, 1865 (10 of 1863)—section $03). 4 Sce—(a) D. Fernandes v. R. Alves, (1878) LLR.3 Bom. 382; 4b) Nitya Gopal v. Nagendra Nach (1895) LLR. 11 Cal. 29. 5, Section 63), Indian Succession Act, 1925. 6, Section 3, Transer of Property Act, 188233 4.25. Tt may be desirable to have definition adopting one of the two precedents referred Recommendation. to above. We prefer that contained in the Transfer of Property Aci—ol course, with the modification that one witness should do. We may add that the change recommended by us have gencrally found favour with most of the replies to cur Questionaire,’ wherein we had included specific queries as to the points which we have discussed above conceming s. 2(b) and s. 2(c). 4.26. The following rough draft is. recommended— “Explanation —In this clause, “attested”, in relation to an instrument, means atiested by at feast one witness who has seen the executant sign or affix his mark to the instrument, or has seen some other person sign the instrument in the presence and by the direction of the executant, or has received from the executent a personal acknowledgement of his signature or mark, or of the signature of such other person, and has signed the instrument in the presence of the executants tout no particular form of attestation shall be necessary.” 427, Section 2(6) defines the expression “‘chargeable", and necds no change. Seen 428, Section 2(7) defines “cheque” as meaning a bill of exchange drawn On a specified gain a7} banker and not expressed to be payable otherwise than on demand. ‘The definition of “cheque” “Cheque” in the Negotiable Instruments Act is identical” In England, the Bills of Exchange Act defines “cheque” as a bill of exchange drawa on a banker payable on demand. The English Stamp Act does not define a “cheque”. The word ‘specified” occurring in our Negotiable Instruments Act, is not to be found in the Bills of Exchange Act, and the requirement of demand is expressed. in positive terms. It may be noted that the definition in the (English) Bills of Exchange Act, is itself based on a judicial decision.* We are not, however, concerned with these minute differences between the Negotiable Instruments Act and the Bills of Exchange Act as regards the definition of “cheque”. If, in falute, the Negotiable Instruments Act is revised, the definition in the Stamp Act could be reconsidered if that is regarded as appropriate, 4.29. In England, cheques are subject to Stamp Duty ;* bur the person to whom the Siamp Duty oa cheque is presented may, if it is unstamped,” affix thereto an adhesive stamp of the requisite Goes amount? It may be noted that stamp duty is not leviable in India on cheques now, because article 13, which levies a duty on a bill of exchange was so amended in 1927 as to remove the duty. ‘What, then, is the significance of the definition of “cheque” in the Indian Stamp Act ? So far as could be asccriained, and apart from the articles, there is one section of the Stamp Act*— séetion 30-—which now uses the exprestion “cheque”.—That section provides that any person receiving any money exceeding twenty rupees in amount, or_any bill of exchange, cheque or promissory note for an amount exceeding twenty rupecs—sball, on demand, give a duly stamped receipt for the same. The expression “cheque” appears ‘in a few articles also. Thus, the Aefiniion has very limited utility. However, no changes appear to be necessary in this definition. : 4.30. Section 2(9) defines the expression “Collector”, and needs no change. Seen ae 431. Section 2(10) defines a “conveyance” as follows :— (10) ‘Conveyance’ includes a conveyance on sale and every instrument by which Séetlon 200) property whether movable or immovable is transferred inter vives, and which is not otherwise specifically provided for by Schedule 1.” 1. Question 6. ‘Section 6, Negotiable Tasteument Act, 1882 . Section 73, Bills of Exchange Act, 1882 (Eng), Hopkinson vs. Foster (1874) L. R. Eq. 74 ‘The Stamp Duty isa fixed one of 2 peace . Section 38(2), Stamp Act, 1891 As to drafts, sce lscussion relating to scotion 23)-—"bill of exchange". ‘Section 30,Requirement. 34 The broad divisions of this inclusive definition are two :— (a) Conveyance on sale; and (&) Other instruments. A “conveyance on sale” is not defined in the Act. ‘A conveyance on sale is defined* in England as including? (1) every instrument, and every deerce of order of any court or of any commissioners, (2) whereby any property, or any estate or interest in any property (3) on the sale thereof (4) is transferred to or vested in a purchaser or any other person on his behalf or by bis direction.” 4.32, Conveyances on safe present no problems. As regards “other instruments”, three points must be noted = Gi) There must be transfer (inter vivos) 5 Gi) All property is covered—movable or immovable ; (ii) But zn instrument otherwise specifically provided for, is not a conveyance. [As regards the first requirement, it is to be noted that it is immaterial whether the transfer is for or without consideration except that gifts are specifically covered separately. Nor are the ‘circumstances of transfer of any consequence. For example, @ transfer oo amalgamation of companies, would be covered*. 4.33. As regards the second requirement, what is (o be noted is that transfer of any “property” is covered. The property may be— (a) a debt’, ; (bo) good-will, which has been described by Lord Mecnaghten as the benefit and good advantage of the name, reputation and connection of a business, and “the attrac tive foree which brings in eustom® ; (©) trade markt ; (@) patents (&) benefit of a contract; (A) a share in a company'* 5 () goods. (Goods can be transferred by delivery. But, if the transfer takes the form of an. instrument, duty is peyable.). ‘Thas, under the prosent Act, all transfers of property movable or immovable on sale of ‘otherwise and not otherwise specially provided for by the schedule, are chargeable as “comve~ Jarees", The transfers otherwise provided for in the Schedule are — i ‘Agseement relating to deposit of title deeds ete. (Art, No. 6) Composition Deed (No. 223: Equitable Mortgage (No. 30) 5 Stamp Act, 1891, section $4 Fear ncrals in brackets are not found in the English Act, but are added fre for conventence, Thee ponerer, cxcutive remision for transfer of assets on amalgamation et. see ae tement of debts, see Doraiswanti Mudallar, A.LR. 1925 Mad. 753 (Ramesam 3.) Reference under the Stamp ci, (1896) LLB, 23 Cal 288, TRE. v, Maller, (1901) AS. 2175 (13001903) AMER, Rep. 413. Bentanin Brooke & Co, ¥, ERC (1896) 2 Q.B. 396, 359 (C.A0) ‘Smelting Co. of Australia, (1897) 1 QLB. 175, 480, 181 (CAD. ‘Nant t, Hanseaj €1907) 9 Bont. LR. 119, 124 (Rassil.) Coats RC, (897) 2 Q.B. 42.35 Exchange ot property (No. 31) 5 Gift (No. 33) 5 Lease (No. 35); Morigage deed (No. 40) ; Mortgage of Crop (Art, 41) ; Partition? (Article 45) ; Reconveyance (No. 54) ; Release (No. 55) 5 Settlement (No. 58) 5 Transfer of share cte. (No, 62); Transfer of lease (No, 63) 5 (Declaration of) Trust (No. 64). 4.34. Duty on a conveyance is subject to the exemption under article 23. In determining the stamp duty, the substance of the transaction, as disclosed by the whole of the instrument, has 10 be looked to, and not merely the operative part of the instrument? *, The use of any particular words like “release*”, “relinquish”, “assign” or “transfer” in any instrument does not conclusively determine the nature of the instrument. 4.35. The question whether a document is a conveyance or a release often proves a dificult ‘one to decide, This is so when the transferee has already a share, or a semblance of a share, in the property in which a share is transferred. The duty on # deed of release is lower than that on @ conveyance for the same amount®. A few cases will illustrate the difficulty. An a Bombay case®, the executant of the document, purporting to be entitled to a share in going pressing factory. transferred absolutely the whole of iat share to the other person interested in the factory, in consideration of a certain sum. It was held that the document was a conveyance on sale of property. In a Mysore case", by mutual agreement, one partner retired from business, and he executed ‘@ document whereby he gave up his share in favour of the other partner, in consideration of a certain sum of money. It was held that the deed could be classified as a conveyance, and hence it was unnecessery to consider whether the deed might also be regarded as a release. This Mysore cease dissented from an earlier Madras Full Bench case, which itself had sought to distinguish the Bombay case". The Madras case held that a document by which one co-owner purports to abeaden or relinquish his claim to the share to which he would be entitled, is in the nature of ‘waclease. The Court had remarked that a document under which one Hindu co-parcener purported to give up right in the family property in favour of the remaining co-perceners would not be @ deed of conveyance, but a deed of release. On this point, the Mysore High Court observed" “T am unable to sce any material distinction between the share of @ co-owner in a particular immovable property and a co-owner’s rights and interests in the assets fof the partnership. for the purpose of determining whether the instrument is a conveyance or release. Nor have their Lordships (ie. the Madras High Court) stated why the extinguishment of the interest of the releasing co-owner and the (Qn one view, partion is a transfer: on another view, itis not: See eases under section 10, $3 ete. Transfer of Property Act. 7 Balerisina Bihart x. Board of Revenue, WUP.. ALR. 1910 M.P. 14 (FB) Vewkatackalaparhi v. State of Mysore, A.LR. 1966 Mys. 323 (F-B). Aa to release, s2e infra. “ticle 55. Ie the matter of Hiralal Novaram, (1908) LLR. 32 Bom, $05 (FB). Venkatachaleparl ¥. State of Mysore, ALR. 1966 Mys. 323 (FB). Board of Revenue v. Murugesa Mudaliar, ALR. 1955 Mad. 641 9, ln the matter of Hitolal Navalram, (1908) LL.R. 30 Bom, 505. 10, Penkatachalpathi v. State of Mysore, AIZR. 1966 Mys. 323, 330, Duy. Conveyance or release,Confit. 36 enlargement of the interest of the release co-owner, eannot amount to a conveyance of the undivided interest of the former to the latter.” Tn a Mysore case of 19700, it was observed : “os ccsse, Whatever may be the mame given to a document by the parties, the docu- iment will have to be examined in the light of the language employed in it and the objects sought to be achieved before any decision in regard to its effect can be arrived at. It is no dovibt truc that in ordinary circumstances ot in a mojority of cases, a rcleuso deed is executed by one or more eo-shares of a property in favour of the remaining co-sharer or co-sharers whereby the first-named release their interest of the second-named”, But, as pointed out by the Supreme Court®, although a deed described as a release deed can be usefully employed as a form of conve~ yance by a person having some right or interest to another having a limited estate eg. ty a remainderman to a tensnt for life, and the release then operates as an enlargement of a limited estate, it can also be made by using words of sufficient amplitude to transfer title to one having no title before the transfer.” In the Mysore case, the brothers who were members of a joint Hindu family transferred their interest in the joiat family property to their father, but without consideration. This was interpreted by their Lordships as a gift, as the intention of the parties was to effect @ transfer of ttle (and not 2 release). 4.36. A recent Madras caset shows that this conflict between the two High Courts still seems to persist. The facts were as follows : By a deed dated 15th June, 1959, the mother gave up her life interest in property in favour of her son and grandson, and in Tiew thereof it was provided that she would be paid a monthly amount which was charged on some other pro- perty. The deed was described as a “partition-deed”, and was stamped as such. On a reference to the High Court by the Revenue authority raising the question whether it was not a conveyance, it was held that “the document, in so far as the mother gave up her Tife-interest, was not a conveyance, but operated only as a “release deed” ‘The fact that such a release was for consideration made no difference in its character as such. The Court reviewed its eatlier cases, and observed :— “The essential difference between a conveyance and a release lies in the fact that jin the fatter, there is no transfer of an interest or right to another who ‘had 10, pre-existing right in it to any extent. A release of a right or of a claim can only be in favour of a person who had a pre-existing right or claim and by reason of ‘the release the latter's right of claim is enlarged’ ot is made fuller in content.” 4.37 This view of the Madras High Court is in’ direct conflict with that of the Mysore High Court in the case already referred to, where it was held that where the release is by co-owner of his share in the common property which is legally capable of being transferred in favour of another co-owner, in a consideration of a sum of money coming from outside the ‘common property, the transaction amounts to a sale of the undivided share, ed out that the decision of the Supreme Court* itself does mot support 1 may also be High Court in the 1970 case referred to above, The the statememt made by the Madias Ralana v. Dhondisa, AUR. 1970 ys. 270, 276 (Pai. 3). e 2. Manlanda Serts v. State of Myvare, ALLR, 1964 Mys. 126; Boord of Revenue .Muroresa Mudalir, ALR, 1988 ‘Mad. 641. 3. Kuppusarnd v. Arunwygam, AR. 1967 S.C. 1395, 1397, paragranh 6. 4 Doord of Revente ¥. Lakshomaran, ALR, 1970 Mad. 248, 349, Para. 3 (FB). 5. Venkatachalopoth ¥. The Stare, AIR. 1966 Mys, 333, 397, wor. & Kupruswaml ¥. Arumgars, ATR. 1967 S.C. 1395, 1997: (1967) SCR. 25.37 Supreme Court refused to hold “that a decd sisted @ deed of refease cannot in law, transfer to one who before the transfer hac! no interest in the property”. On the facts of the case, there- fore, it was held that though the deed was called a release deed, the words used were sufficiently clear to transfer ttle to one having no title before the transfer. There was no question of stamp duty in the Supreme Court case. 4.38. The Madras case! of 1955 was a case of one of the co-owners releasing his right in favour of the rest of the co-owners, The High Court held thet the document relating to it was a release, and not a conveyance. In expressing that view, Rajamannar, C.J., who spoke for the Court, observed — “In such a case there need be no conveyance as such by one of the co-owners in favour ‘of the other co-owners, Each co-owner in theory is entitled to enjoy the entire property in part and in whole. It is not, therefore, necessary for one of the co-owners to convey his interest to the other co-owner. It is sufficient if he releases his interest. The result of such release would be the enlargement of the share of the other-co-owner. There can be no release by one person in favour of another, who is not already entitled to the property as a co-owner.” The Madras casc* of 1968 took a similar view. Both these cases related to release of a co- ‘owner's right in favour of the rest of the co-owners. 4.39. So much as to release, Some difficulty is created also by the words “and which is ot otherwise specifically provided for by Schedule 1.” Do these words qualify also the first ‘category indicated by the words “conveyance on sale”, or are they confined to the second cate- gory indicated by the words “every instrument by which property is transferred” ctc.? {a the Mysore case, the latter view was taken. As a matter of interpretation, it is possible to-take a different view and to regard the words “conveyance on sale” as unqualified by the words “and which is not otherwise specifically provided for”. In fact, none of the other articles which tax a transfer of property woud. in ordinary parlance, be described as a “conveyance fon sale”. So this question should be academic. But it is better to make it clear that only the tanee half of the clause is qualified by the words “and not otherwise specifically provided for ete. ~ 4.40 History of the words does not throw much light on this point. In a Caleutta case’, where the Maharajah of Darbhanga, by a deed of family arrange- ‘meat, conveyed a Pargana and a sum of two and 2 half lakhs of rupees to his younger borther ‘on candition that the latter should release certain family properties on which he had claims, the High Court hekt that the deed was neither a conveyance ner a settlement nor an instru- mest of partition within the meaning of the Stamp Act of 1879. The deed, not having been made by way of sale, was in its nature a deed of arrangement, by which a sum of money was paid absolutely and a maintenance grant made by the Maharajah of Darbhanga to his younger brother, by way of discharge and satisfaction of all claims by way of maintenance or other- ‘ite. It was considered that such documents should not thus escape the duty altogether, and thence the definition in the present Act has been altered so as to make it include all transfers {ntey yivos which were not specifically provided for in the Schedule’. The Select Committee on’ the Biamp Bill, 1898, observed thus : “We have altered this definition so as to make it include all conveyance inter’ vivas which are not specifically provided for in Schedule I and thus to meet the dift- culty in LR. 7 Cal. 21, where it wns held that the instrument in question |. Board of Reverie v. Muragasa Mudaljar, ALR. 1955 Mad, 61 (FB) i oydeny ee Feedoene earner cee er 2. cin Bees Sara fee SAA Se sere See tSracvae iemraremceiae® Spanner Mot Law/7™—6 Madras cae of 1338. Soope of sees and which Bstoernte ovided forty ded38 was neither a ‘conveyance’ nor a ‘setticment’, not an ‘instrument of partition’ Dut aa ‘arrangement? for the transfer of property.” Recocamendae 441. It is desirable that the conflict of opinions between the Madras and Mysore High Courts on the question of release, as also the obscurity as to the words “what is not otherwise specifically provided for”, should be clarified. In particular, the fact situations of a co-owner transferring his share in the common pro- pecty for a consideration to another co-owner, needs specific consideration. ‘Three classes of transactions may be considered in connection with release— (1) Sales which do not involve a release.—For example, a sale between two persons who had no prior common interest in a property sold, docs not involve a release, as a release pre-supposes the existence of common interest of the parties to the transaction. (2) Sale involving release—For example, if the seller and the purchaser have a prior common interest in the property, there is, in a sense, a release by the seller of his interest in the property, But the transaction is also a sale. (3) Reslease nor resulling in sale.—For example— (a) a release relating to a settlement of a doubsful claim ; () a retease of a right which is not capable of being transferred in law, like the right to maintenance, or the mere right to sue ; (©) a release of a debt by the creditor (here the debt is not transferred from the creditor to the debtcr). @ a double or multiple release accompanied by the acquisition of the fall right by each co-owner in the portion of the property allotted to bm, which may amount to partition between the co-owners ‘As against this, where “release” is by a co-owmer of his share in the common property which is legally capable of being transferred in favour of another co-owner, for a consideration in the shape of a sum of money coming from outside the common property, the transaction ‘amounts to a sale of the undivided share, ‘Ameainent. 4.42, In ovr view, it would be useful to add an Explanation in the definition of “con- ‘veyance”, to cover an instrument whereby 2 co-owner transfers a share to another co-owner The intention is that this should apply whether or not the transfer is for consideration. Many of the replies to our Questionnaire! have expressed agreement with such a view. The chargiag article on “Release” also lends some support to such an approach’. Some have raised the objection that this amounts to levying a tax for the first time, but we would point out that 4 is not $0, as will be apparent from some of the reported cases referred to above. © Sega 209 443. White on the subject of ‘conveyance’, we may also discuss the question of; faaally Ntomeyanse and arrangements. : arrangement”. ‘There appear to be two senses in which the expression “family arrangement” is ‘wed a family arrangement in the narrower sense is the bona fide settlement of a claim ot dinpiute Ge, ‘or dispute which has arisen or may arise), by the members of a family?, fos the benefit, peace o cecurity of the family generally or for preserving its property or honour. In the wider pense, it means any arrangement between members of the same femily* for the benefit of the family. ‘ “T. Question 7 in the Questionnaire, 2 Ante 55. 3. (a) Bothar Singh v. Duta, LIAR. 52 All. 963 (©) Amcor Hasan v, Md. Bo: Khan, ALR, 1929 Oud 134; (©) Stal Singh v. Relka Shh, AUR, 1937 Oud 433,434 44, Bosant Rumarv. Lata Ram Sankar, LLR. 59 Cal 859. See ia.39 ‘As Cheshire and Fifoot observe! : “The expression ‘family arrangement’ covers a multitude of agreements made between re- Jatives and designed to preserve the harmony, to protect the property or to save the honcur of the family?, It comprises such diverse transactions as the following : a resettlement of land made between the father as tenant for life and the son as tenant in tail in remainder ; an agreement to abide by the ienns of a will that has not been properly executed, or to vary the, terms of a valid will the release of devised property from a condition subsequently imposed by the testator ; for an agreement by a younger legitimate son to transfer family property to an illegitimate elder son” 4.44, Family arrangements are specially favoured by the substantive law, in certain res- pects—e.g., no separate consideration is required? : ‘The couris view any such arrangement with favour and will uphold it unless there are strong reasons for doing otherwise’. Agnin, the Specific Relief Act, 19634, section 15(¢), corresponding to section 23(c) of the Specific Relief Act, 1877, allows, in the case of a family arrangement, a suit by beneficiaries who are not parties to the arrangement We have referred to these rules relating to family arrangement by way of illustration, It is nat necessary, for the present purpose, to enumerate all the rules of the substantive law applica- able to family arrangements. 4.45, We now revert to the two senses of the expression “family arrangement” mentioned above, It is stated that a deed in the nature of family settlement may be “based on the assump- ‘ioe that there was an anteccdent title of some kind in the parties, and the agreement acknowledges ‘snd defines what that title is’. Here, the narrower sense of the expression is intended. In Mi, Hiren Bibi v. Mt. Sohan Bib, the Privy Cuncil, approving its earlier decision in Khuni Lal v. Gobind Krishna Narain’, held that a compromise by way of family settlement is in, no sense, an “atiena:ion” by a limited owner of property. Here again, the narrower sense is inteoded. It would appear that this is so because no new title is created, and the antecedent title is clarified by such compromise. Hence, where a family arrangement is based upon an assump- tion that there was an antecedent title of some kind, it is not a transfer. In other words, if a family arrangement is for the settlement of disputes—existing or future!®,—it is not a “transfer”. 4.46, In the wider sense, a family arrangement, as already siated, is a transaction between members of the family which is for the benefit of the family generally". ‘So viewed, it goes beyond ‘8 mere compromise. It follows that a family arrangement in the wider sense can amount to a conveyance. Thus, where 2 document was executed in favour of a widow, whereby the executant, in pursuance of 7 Canina Hon nde OR eT (2 Cheshire and Fifoot, Law of Contract, (8th Ed.) (1973) page 277. 7 Sica cee So LET, Seiya ar eR 8 entenn cneeestt Bee ee OE ees Bier Mamet arm {merase tahoe cE ee we une 8 SR anes ima NU EE cs 1 Waves os beeper LR TSS semen RSs ES, beta asain AR REG gtion conn aaca Multitude of arrangements40 a rajinama filed in a suit for maintenance brought by the widow, transferred to the widow a piece of land valued at a certain sum in satisfaction of her claim, it was held? to be a conveyance?, 4.47, On the question whether a family arrangement does or does not amount to a “con veyance” for the purposes of the Stamp Act, the answer must, therefore, be sought in the nature ___of the instrument. What is called by the parties a family arrangement, may be a conveyance, or a partition, or a release?-‘, or some other category of instrument. If an instrument operates 9s ‘2 conveyance, it does not matter whether it is described as a memorandum or a release. It is, in this context that one must distinguish between a family arrangement in the narrower sense (a compromise), and a family arrangement in the wider sense Ameadmentno: 4.48. Broacly speaking, if a famil Pen firms rights, arrangement merely rnounces a claim or declares or con- is not a conveyance. If it transfers rights, it is a conveyance. We have discusted these aspects concerning family arrangements in order to bring out eer- tain important elements, We do not. however, consider any amendment on the subject to be necessary. ‘Recommncedation 4.49. In the light of the above, we recommend the following re-draft of sub-section (10): 200) “(10) ‘Conveyance’ inctudes— (a) a conveyance on sale ; (b) every instrument by which property whether movable or immovable, is trans- ferred inter vivos and which is not otherwise specifically provided for by Schedule [= EExplanation—An instrument whereby a co-owner of @ property transjers his interest to another co-owner of the property, is, for the purposes of this clause, an instrument by which property is transferred.” 1 Reference wnder the Stamp dct (1098) LR. 21 Med. 22, 425 2. See also Biota Ram v. Emp.. ALR. 1934 Lab. 530, 532. 3. fr Re Hira La, 1908) LR. 32 Bom. $08, $22. 4. Khudmat Hubrofiv. Deputy Commissioner, ALR. 1943 Oudh 168, 172. 5. See, eapesally— () Marquess of Brio! (1901) 2 K.B. 336; (b) ALR. 1955 8.C. 481; (©) ALR. 1966 $.C. 2920; (@) ALR. 1966 S.C. 323 (© ALR. 1967 S.C. 1395,CHAPTER 5 DEFINITIONS IN SECTION 2(11) to 218) $.1, Section 2(11) defines the expression “duly stamped”, as applied to an instrument. There section 2(11)-- are three broad requirements under the definition, First, the instrument must bear a stamp of “duly stamped. not Jess than the proper amount ; secondly, the stamp must te an adhesive or impressed stamp ; and, thirdly, such stamp must have been affixed or used in accordance with “the law for the time being in force in India.” Though 0 change in this detiaition is aceded, two observations are in order. First, the de- finition, like any other definition. should be taken as subject to the content, and construed in ‘tarmony with other provisions. For example, where duty has been remitted by notification under section 9 or a specific exempticn is provided for under the relevant article, stamp need not be ‘affixed. This aspect becomes material for the purposes, for example, of section 30, under which 2 parson receiving money exceeding twenty rupees in amount etc. is bound to give a “duly stamped receipt” for the same, Obviously. where an exemption has been granted by or under the Act for a particular class of receipts, there can be no obligation to affix a stamp on the receipt, and the giving of an unsiamped receipt should be regarded as sufficient compliance with section 30. Secondly. the definition of ‘duly stamped’ speaks of adhesive or impressed stampst only. This is in conformity with scctions 10 and 11; but it will be worthwhile considering the use of frank- ing machines. This point will be considered at the appropriate place® 5.2. In England, it has been observed in one case* that an instrument—in that case, & Position ia security—is duly stamped “cither if it has actually borne the correct amount of stamp duty that it attracts or if itis exempt for stamp duty.” ‘The expression “duly stamped” would seem to mean not only bearing a stamp of the pro- ‘per valuet. but also stamped at the right time®, in the proper manner®, with the proper descrip- tion of stamp under the Stamp Rules, and duly cancelled’. Thus, in the definition of the expression “duly stamped”, a number of ingredients are im- plied, such a8, provisions of the Act relating to description of the stamp, mode of affixing stamp ‘and the like. A difficulty may arise where the amount of the stamp satisfics the law, but, tn other respects, the instrument is not “duly stamped” as explained above. Under section 35, proviso, a deficiency in the amount of the duty can be rectified. But the situation where there 4s no deficiency in duty is not specifically covered by the proviso, though it would appear that ‘the: language of the proviso to section 35 is wide enoygh to cover such cases. Having regard to ‘the fact that this is a recurring situation. it appears to be desirable to amend section 35, proviso @), by a specific provision in this regard. This point will require consideration when section 35 in revised’ 5.3. As cegards the case of use of 2 stamp of improper description, it is covered separately’? under section 37, which allows the defect to be rectified by applying to the Collector. T. Ree dehaition of ‘impressed starpy, se section 2013). 2, en recommendation as to section {0A (proposed. ‘3 ERG. Henry Enabacher & Co., (1963) A.C. 191, 208, 210 (1962) 3 WLR. 1292; (1962) 3 All E.R. £43, 848 {per Lord Mortis of Bortha-Gest), 4. Section 3, ese $. Section 3,17, 48 and 19. 6 Beptons [3 and 14. 17 Bections 10 and 1! 8. Sections (2 and 13. 9. To be considered under section 38, 10. Seetion 37. 4a2 tories to which this Act extends.” In section 2(16A), the expression “India! “gnarketable security” sold in any stock mar 7. Section 456), General Clauses Act 1897; 2. For consideration under artic I. 5, Mimites of 20th December, 1974 Sections 2(6), 201, 203}, (164), 30), S$. Question & of the Questionnaire. may be retained, The effect will be.t@ cover Ket in the State of Jammu-and Kashagi-? eof a SS Segtion 207 5.4, Section 2(12) defines the expression “executed” and “execution”, used with reference “Eaeuted’309 1g instruments, as meaning ‘signed’ and ‘signature’. The meaning of ‘sign’ is explsined in the the General clauses Act*. Under section 3 of the Stamp Act, aa instrament is chargeable with duty only if it is “executed”, But, an acknowledgement is, under article 1, chargeable with duty, if it is “written” or “signed” by or on behalf of the debtor. A discrepancy, thus, arises between the definition fof “execution” (read with section -3) on the one hand, and article 1 on the other hand. This ‘pill require? consideration, when we consider article 1 euaawy "55, The cention of “impressed stamp” in secon 213) aco 0 comments Bee say __ 5.6. The expression “India” is defined in section 213A) as meaning ‘the territory of Sind India excluding the State of Jammu and Kashmir’. The object of the definition is to- indicate that the sostons concerned refer only to the territories to which the Act extends, To carry: out this, it was suggested? that it should be revised as under : “(13A) “India” means the territory of India to which this Act extends”. ‘We, however, prefer an alterni ‘course—deletion of the definition of “India”. Though that would involve extensive consequential changes in numerous sections where the exprestion whale” ovcurss) we are of the view that itis a preferable course, We shall presently indicate ‘our reasons for this, Section 21134) 5.7. The word ‘India’ appears in the following sections :—~ ‘adi Section 2(6), Section 2(11),, Section 2(13), Section 2(16A), Section 3(6), 3(6)s Section 17, Section 18, Section 19, Section 20, Section 32(3), proviso, ‘Section 33(2), Section 50, proviso. ; 5.8. We are of the view that the definition of “India” should be deleted, since it, is not appropriate that sich an artificial dition should continue on the statute book. At peomeat, aepreTrition has been inserted as a technical device because several sections use the expeeasion. ae aern We are recommending the subsitation, in the substantive sections, of the expeesice wWrtory to which the Act extends” in all eases where the substantive provised, when spenking sero ie etended-to apply only 10 the territories, now. arial deGmed, ws “Indi of nd ion tbat nose ot the ceples restved (0 our Querionasi. hang also, agreed with the view that the definition ‘should be deleted. Let us now come to the consequential changes, In section 2(6)— chargeable? —apd s02- : on eee eet°arapd"—the expression “India” should be medifed by sobetimting “ert ‘fe, 19, 18, 17 , 2, 32) Proviso.332), and 50 Provies43 With reference to section 3(b) and section 3(c), which relate to certain negotiable in- struments and cortain other instruments executed outside “India” and brought into “India”, the deletion of the definition in s. 2(13A) of “India” will mean that instruments executed outside india will not be required to be stamped, and “India” will, of course include the State of Jammu & Kashmir. This consequence is intended. Hence, “India” occurring for the first time 1m section 3(b) and 3¢c) should be retained. But the word “India”, where it occurs for the second time in sections 3(b) and 3(c), should be modified by substituting the expression “territories to which this Act extends”, since that portion refers to things to be done within the territories to which the Act extends. Jn section 17, in the phrase “instruments exceuted in India”, the expression “India” may be modified by substituting “territories to which this Act extends” In section 18(1) (time of stamping), the word “India” may be retained where it occurs for. she first time. But it may be modified where it occurs for the second time. This section is the converse of section 17. In section 19, (bills cic. made out of India), the expression “India” may be modified where it occurs for the first time, thitd time and fourth time, and retained where it occurs for the second time—“érawn or made out of Indi In section 20, the word “Indie” may be retained. The sect in any currency other than that of India, relates to money expressed In section 32(3), proviso (a), the word “India” may be modified, since it refers to instruments executed in the territories to which the Act extends, Documents executed in Jammu & Kashmir should fall outside section 32(3), proviso (a) In seetion 32(3), proviso, clase (b), where the word “India” where it occurs for the seeend time, it may be modified. Where it occurs for the first time, it may be retained In section 33(2), the expression “India” may be modified. In 5. 50, proviso (a), it may be modified at both the places. $.9. Section 2(14) gives a definition of “instrument” as including every document by which any right or liability is or purports to be created, transferred, limited, extended, €x- titignished or recorded. ‘5.40. Attention should be drawn to the lest word “recorded”, which does not usually ‘acciit in provisions relating fo instruments in other enactments. The words “records” is obvi- ously needed, in the Stamp Act, as otherwise the duty on “acknowledgement” and the duty ea “memorandum of agreement”—to take only two cxamples—would not be @ duly on an “Smserumen:”. And, since it is well-known that “the thing which is made Tible to duty is the metreescst”,? this amplification in the definition is welcome. ‘On the other hand, however, it is not to be overlooked that every document “recording” A thadsaction isnot taxable. Apart from cases where an express provision exists,—as in the two examples of acknowledgement and memorandum of agreement referred to above—a docu- ‘ment which docs not itself deal with the right in the particular manner, bot merely records @ past “dealing with the right”, would not, merely because it records such dealing, be regarded fieff_as an insirument containing a transaction of that fype- This aspect becomes material in respect of a few instruments—eg., an instrument of partition? 5.11, “Instrument of pattition” is defined in section 2(15), as meaning any instrument, Sextion 2014)— Afsteument™ Sgienzan- whereby co-owners of any property divide or agreé to divide such property in severalty and as iestrummant of 1. See, eg, ection 17, Registration Act, 2 ERC. ©. arava, (1889) 23 Q BD. 519, 589 (Lord Esher, MLR. 4. Section 208)-—"Tasteument of partition44 including also a fina) ocder for effeeting a partion passed by any revenuc-authority or any Civil Court, and an award by an arbitrator directing a partition, ‘There are, thus, four types of instruments with which the deflation conceras itseli-~ (a) any instrument whereby co-owners of any property divide such property in severalty ; () any instrument whereby co-owners agree fo divide the property in severulty ; (©) a final order for effecting @ partition, passed by any reveous authority or any civil court ; and (4) an award by an arbitrator directing a partition. sey 5.12. Instruments between co-owners dividing property in severalty, present few problems— ‘Memorandum 5.128. ‘The familiar question whether a particular document memely records a partition ofparition.” already orally effected, or itsclf divides the property,—so often arising under the Registration ‘Act—has arisen under the Stamp Act also. The question is one of construction of a parti- cular document. The abstract rule is clear, namely, that a document recording a past parti- tion is not chargeable with duty." ‘The Legislature, no doubt, can levy duty on such documents also, and it appears thet by a State amendment, Rajasthan? has added a provision’ whercunder “instrument of partition” tmeludes— (ii) when any partition is effected without executing any such instrument, any {instrument or instruments signed by the co-owners and recording, whether by way of declaration of such partition or otherwise, the terms of such paftiti amongst the co-owners.” ‘There seems, however, some possibility of harshness resulting from such @ wide amend ment which might take in even incidental reference to past partitions. 5.13, Tt should be noted that under the general law, to constitute a “partition”. there need not be an actual partition by metes and bounds. An agreement to divide in equal share is sufficient to constitete parttion.* In fact, even an intimation is enough, if unequivocal. | Whe- ther the same principles apply for the Stamp Act, is not very clear. The words “agree to Givide” in the clause seem to refer to an agreement to divide on some future date which does fot operate to create any right in the property. Thus, it has been held® that 2 partition Est which does not itself effect division but is merely an agreement for effecting a future partition ‘on terms agreed, is not an instrument of partition, and is liable to stamp duty only, as an ) agreement. (© Fiat der 45.14. ‘The thitd category of instruments of partition comprises orders effecting partition Ger fictings | passed by a revenue authority or civil court. Some controversy seems to exist as to'the comee~ Eyareveme quences of non-stamping of a decree Shorty oF ling more appropriately to section 38, which deals with the consequences of failure to stamp. 5.15. Awards by arbitrators directing constitute’ the fourth category of “instne- jon”, No changes are needed in this part of the definition. comnection with an award of arbitrators are— inthe. ea 5.16. In the definition, the words used in com : dizecting a panttion”, and not “effecting 2 partion”, —which is the Gefnition in Connection with a fisal order of a Revenue authority of Ci Tne Tra, ALR. 1982 A. 72088), een arp Anendoent A, 1986 (6 0f 1960, Gate rlrnt pore aun, me sharya ¥, Damodar Makund, LLR. 13 Bom. 28. 44, Anantha Bhewt S. Gonwuiva v. Chimna Lingeiyea, ATR, 1933 Mad. 162,4s 15, that arbitrators have no power to dla more than te ditect a partition. Therefore, even it the arbitrators go. further and define the manner in which the partition should be made, it -has ‘no more binding force,t and for the purposes of Stamp, it remains an instrament of partition? §.17, Section 2(16) provides that “Tease” means a lease of immovable property and includes also— (a) a patta; (>) a kabuliyat, or other undertaking in writing, not being @ counterpart of « lease to cultivate, occupy or pay or deliver rent for, immovable property ; (©) any instrument by which tolls of any description are fet; (@) any writing on an application for a lease intended to signify that the application ‘is granted. fn the Transfer of Property Act,’ a lease of immovable property is defined as a transfer of a right to enjoy such property, made for a certain time expressed or implied, or in perpe- tuity, in consideration of a price paid or promised or of money, a share of crops, service or any other thing of value to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. ‘The English Act docs not contain any definition of a “lease”, and it is to be asqumed ‘hat it-has the same meaning as under the general law.* 5.18. The definition in the Indian Stamp Act can be divided into two parts. First, it says that “lease” means a lease of immovable property. ‘While confining the scope of the expression to “immovable property”, this part of the definition does not indicate what is intended by “lease”. Secondly, certain instruments arc, by the second part of the definition which is inclu- sive, brought within its scope. 5.19, As cogards the first part, it is pertinent to point out that courts have, in deciding particular cases,* referred to the definition of “lease” in the Transfer of Property Act. A quet- tion: to be considered is, whether we should now provide that “lease” means a lease as. defined in tho Transfer of Property Act. While that Act does not apply to the whole of India, and the provisions as to leases do not, in their entirety, apply to agricultural leases, it seems useful to adopt the definition in that Act by reference, so as to have precision. We recommend that 4t should be adopted. The replies to our Questionnaire! have also, in general, agreed with this. 5.20. Both under the Stamp Act, and under the Transfer of Property’ Act, the: term. lease” js restricted to fease of immovable property; but nowhere in either of these Acts is the ex- pression “immovable property” defined, Section 3 of the Transfer of Property Act simply says that “immovable property does not include standing timber, growing crops, or grass. As. the Stamp Act is silent about the expression “immovable property”, the definition of that expression in the General Clauses Act can be used. That definition® iaciudes “lend, benefits to arise out of tnd’ abel things attnched to the earth, or permanently fastened to anything attached, “to, the earth” —“a definition large enough to include growing grass."* 1, Kakidesv, Tibhawondas, (1907) LLR. 31 Born, 68,71 2 Seeatso Emperor v. Bito Lal, 73 1.C. 236 (Oud 2 Seetion 105, Transfer of Proprty Act, 1882. Sees LRGs Sweomen! AuomateDeiery Cov LRG (885) QB, 484, where an agroment Soesing 4 Se dams hPG i Sertte'nacklners on malls platforms was NAW not to bea Tee for step day Puan. 5. Bp. Ax. Sey. Board of Railway ¥. South tndia Railway, ALR. 1925 Mad. 434, 438 (F.B). (Krishoan, 3.) 6 Question 9 of the Questionnaire. 7, Section 226), General Clauses Act, 1897, 8. fn re Horus Irani, (1886) LLR. 13 Bom. 87,89 2AM of Law/7?—7 one sea ‘Two parts.46 ‘The more restrictive provision in the Transfer of Property Act and the Registration Act, thould not, it has been observed, be imported into the Stamp Act. We are of the view that the definition of “immovable property” in the General Clauses Act should be adopted, by repeating it in the Stamp Act. 5.21. The second part of the definition of “lease” in the Stamp Act has four clauses. ‘These deal with particular classes of instruments. The main object of these is—()' to check avoidance of duty by not executing a lease, and (ii) to extend the definition to the letting out of “tells", which are not “immovable property” in the stricter sense. 5.22, The sub-clauses do not seem to have raised such controversy. But sub-clause (¢), which relates to a toll, could be explained in some detail. A (oll is an imposition for the pri- Siege of using a bridge, road, ferry, or market, ot for catching fish, cutting and appropriating tees for fuel ete A tax paid for somie liberty, particularly for the privilege of passing oves & bridge or on highway, the tax puid for the use of a ferrj,? or the tax paid for selling in a market or fait, of the tax paid for the right of fishing in a river, is a toll Slib-ctause (c) has, thus, extended the meaning of the term “lease”; for, the right to levy tolls, though concerning the user of land or wafer, is not regarded in law as an interest tm immovable property. Aa ijardar of tolls does not acquire any interest in the land or water Concerned.? Toll t distinguished from octroi which is a duty levied on good entering « certxin area, town or territory. ‘There are several Central Acts relating to tolls— (a) The Indian Tolls Act, 1851 (an ‘Act for enabling Government to levy tol on public roads and bridges) ; (b) The Indian Tolls Act, 1864 ; (©) The Indian Tolls Act, 1888 ; and FE (4) The Indian Tolls (Army and Air Force) Act, 1901. 5.23. It should, lastly. be noted that the entry in the Schedule to the Stamp Act? charges duty on an agreement of lease also. We shill deal with this at the appropriate place. 5.24, We may, at this stage, reftr to the Gstinction between “lease” and “leenct. A person may lawfully enter on land either in’ exercise of right a6 owner i Pe because the owner has given him permission. The owner might have grant or eermrec conforring the right of exchsive possession—or he might merely have fen & ficence,* permitting him to enter the lend Gr use it for specified purposes. 525, The classic definition of Ticgncs’ was propounded by Vaughan, C. J. in We sevemcenih century in Thomas v. Sorrell” He said “a dispensation or licence property posseth senterest nor alters or iransfers property in aay thing, but only makes an action Tewtol, which without it had been unlawful!” : TV tare Ho CLR. 13 Bom. 8, “Nanabbal Hayridas 3. (The cajority x in i el Jae Hora rai, (580 1. 13 Bown. £789. Ser Nena Hariday 2, Che ier, se Feel fe ret ote i question, by wa Breve ho i ral pr barbus Oo nase, beesuse pomranon had not been FATS 2. (@) Goodiichv. Venkaena, (1878-81) LR. 2 Mas. 1045 @) Financial Commissioner of the Panfeb’s Circular No. 35, dated 13th August 188: ‘aval, Part FB, Chap. 3, para. 2 . (© Ram Priram. Shoobulchunder, (1889) LL. 15 Cpl. 259. 3. Deputy Collector, Robt v. Denial, (1853) Bom. PJ. U1, Madeas Stamp ‘Manual, (1988) 107-15. ‘A, Prealdent of the Tali Board ¥. (1996) LLR. $1 Mad. $4. +E Mitempore Zonindary Co. ¥» Tray, ALR. 924 Ea. 562. & Standard Coe! Co, ¥. CRA. Beega, (1948) LR. 2 Cal, 323. 7. antile 35, Stamp Act 3, For bstory of iceoes, see Holdsworth H.E.C. Vol. 1, page 327,328. 9. Thomas v, Sorrell, (1673) Vaughan 351. 1934) Punjab Stamp WiCT ‘The expression “licence” is aot defined in the Stamp Act, or in the Transfer of Property Act, The Easements Act, defines it as follows :? "52. Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, ‘and such right does not amount to an easement or an interest in the property, the right is called a licence.” 5.26, In the law of property, lease and licence are distinguished by stating that a Jems. transfers an interest in land, which a Licence does not. Where exclusive occupation is dt given, the right is only of licence.* A licence is merely a personal right, and does not amoust to an interest in property.? 5.27, As Denning, LJ. (as he then was) observed,* the difference between a tenancy and a licence is, therefore, that in a tenancy, an interest passes in the land, whereas, in a Bizence, it does not, He, however, added, “In distinguishing between them, a crucial test has sometimes been supposed to be whether the occupier has exclusive possession or not”. “If he was Jet into exclusive possession, he was said to be a tenant, albcit only a tenant at will, Whereas if ho had not exclusive possession he was only a licencee. This test has, however, coftea given rise to misgivings because it may not correspond to realities..... The test of exclusive possession is by no means decisive.” In the context of the definition of ‘Tease’ in’ the Stamp Act, the distinction between lease and licence becomes material, because, if the document is not a lease, the charge for leases under the first part of the definition of lease would mot be attracted. At the same time, it shoaki be noted that the inclusive part of the definition of ‘lease’ is not confined to leases g and may cover documents which are not leases ag defined! in the Transfer of Property Jn particular, clause (b), which relates to “kabuliyat or other undertaking in writing, gt. being a counterpart of a lease, to cultivate, occupy or pay or deliver rent for immovable ” is somewhat widely worded. No doubt, a liceace docs aot become a lease merely fae a “rental” is reserved, the licences like exploring and prospecting licences (in respect of minerals) are not regarded as leases for the purposes of the definition in the Stamp Act. Here, the general test of transfer of interest as indicated by sole and exclusive occupa tion* could be utilised, © 5.28, But it is to be noted that ia clause (b), the words used are not sole and: exclusive occupation, but an undertaking to occupy immovable property.’ A case could, therefore arise ‘where, even though the document specifically says that it should not be construed to create fa tenancy, the rights conferred by the document on the party by the owners are of such a ature that it would fall under clause (b). 5.29. In the light of the above discussion, we recommend that the definition of lease should be revised as follows :— (16) ‘lease? means a lease of immovable property as defined in section 105 of the Transfer oj Property Act, 1882, and inctudes also— (a) a patta ; (b) a kabuliyat, or other undertaking in writing, aot being 2 counterpart of a “tease”, to cultivate, occupy or pay or deliver rent, for, immovable property. (©) any instrument by which tolls of any description are let ; (4) ony writing on an application for @ lease intended to signify that the appli- cation is granted. 52, Indian Easereots Act, 1682, LR. 1989 5. 1262, 1269. ot 968 S.C. 175; (1968) 1 SCR. 23. nv. Errington, (1952) 1 KB. 290, of Revente¥. Soh Fadian Rattway Co. LLLR. 48 Mad, 368; ALR. 1925 Mad. 434, Gil Co,, TLRS All. 874: ALR. 1933 Al. 735, peabail eH‘Sectloa 21164)— Marketable Security. tion. ‘ection 207)— ‘Section 218)— “Paper” 48 Explanation—in this section, “immovable property” includes hand,, benefits 10 arise ‘out of land and things attached to the earth, or permanently fastened to any thing attached 10 the earth.” 5.30, Under section 2(16A), “marketable security” means a security of such a descrip- tion as to be capable of being sold in any stock market in India or in the United Kingdom, "The definition was added in 1904, when this definition and section 23 were added and arti- cle 6 (agreement relating to deposit of title deg) etc, was amended. The object of the amend ‘ment was to save instruments of deposit of marketable securities from the ad valorem duty under article 6. There are no Indian cases on this definition, though there are a mumber of English cases on the corresponding provision in the English Act.? 5.31, We recommended that the mention of ‘United Kingdom’ in this definition should be omitted, having regard to changed political conditions. There have been suggestions? to omit “in India” also, but we do not think that the clause need be so widened. ; 5.32, Section 2(17) defines a “mortgage deed” as including every instrument whereby, for the purpose of securing money advanced, or to be advanced, by way of loan, or jan existing or future debt, or the performance of an engagement, one person transfers, or orcates, to of ia favour of another, a right over or in respect of specified property. It may be noted that a mortgage of movable property is also covered by the definition Another point to be noted is that this definition includes charges also,* as the words “over or in respect” of property are wide, wie ae ‘The body of the Stamp Act makes no distinction between legal and equitable mortgages. But the charging provision’ makes a distinction, ‘The duty is different, if the mortgage i in the shape of an agreement by way of deposit of title deeds.” ‘A deed which contains all the provisions which one would normally find in a mortgage deed, would, however, be chargeable as a legal mortgage. The mere fact that tho document faiso contains the bargain with regard to deposit of title deeds, will mot make it an agree- ment for the deposit of title deeds,* within the meaning of article 6. ‘The above points do not indicate a need to change the definition, 5.33, In section 2(18), “paper” is defined as including vellum, parchment or any other ‘material on which an instrument may be written. : It needs no change. This neceteary in order to avoid any argument that the definition inthe Transfer of Property Act be attracted, 2. Section 122, Stamp Act, 1891 (Eng). 4. In reply 10 the Questionnaire issued by us—Queatioi 10 oe ‘4. Miran Baksh v. Engeror, ALR. 1945 Lah. 69, 72 -B) 5. As to charges, te section 100, Traasfer of Property Act 6, Article 6, a8 contrasted sith article 40(0). 7. As to the postion under the Rogstation Act, see A.LK. 1939 P.C. 167 1 Inve Indian Stamp Act, ALR. 1954 Bors. 462, 463, paragraph, 2 (F-B.).CHAPTER 6 DEFINITIONS IN SECTION 2(19) AND 2(20) 6.1. Section 2(19) defines “policy of insurance” as including— “(a) any instrument by which one person, in consideration of @ premium, engages to indemnify another against loss, damage or liability arising from an unknown ‘or contingent event: (b) a life-policy and policy insuring any person against accident or sickness, and an any other personal insurance.” 62. It may be pointed out that clause (a) of the definition is not confined to ‘policies’, and includes any instrument by which one person engages to indemnify another. If there is ‘tm indemnity undertaken in the document, then it is a policy for this purpose, even though, in ‘business’ world, the document may be distinguished from w “policy”. 6.3: In relation to one class of documents, namely, Jetters of cover or engagement t0 issue a policy of insurance, the position requires detailed examination, The nced for discussion arises out of the charging article,—article 47. 6.4, The principal paragraph of article 47 levies duty on various policies. Considerable ‘confusion is created ty the “general exemption” under the article, quoted below! :— “General Exemption”, _> “Better of cover or engagement to issue = policy of insurance.” “Provided that, unless such letter or engagement bears the stamp prescribed by this et for suck policy, nothing shall be claimable thereunder, nor shall it be avail- able for any purpose, except to compel the delivery of the policy therein men- tioned.” ‘This exemption is anomalous, because, as will be shown presently, there is considerable iffereace between a letter of cover etc. and a policy. In fact, the very language of the exemp- tion makes a distinction between an ‘engagement’ and a ‘policy’. 6.5. The exemption lor letters of cover etc, would suggest that a letter of cover ete. would otherwise fall under Uke expression “policy of insurance”. But, as stated by the Supreme Court in R, Ratilal and Co, while a letter of cover contains a contract of insurance, it is not a “policy ‘of insurance” in the common understanding of that word in the trade’. &6. In the Supreme Court case (which related’ to fire insurance); the letter of cover was sped, but, the plaintiff was prepared to pay the penahy under section 35; and had realy done so. The ‘question to be decided was whettier, even'on payment of penalty, the ‘eguld be admitted in evidence. This question arose because the contention of the ‘sompany was that since the exemption under article'47 uses the words “bears the stamp by this Act jor such policy”, the stamp should have been affixed ar‘ the wine of ihe Fad the provision in section 38 for subsequent paymiént of pematy: could not be involved aur of the special languege of the exemption. This arguméat Was negatived by the Supreme _by a majority jodgement!. According to the minority view, however, in view of the express ‘of the exemption to urticle 47, the letter cohld hot-be subsequently stamped ‘under 7. This discussion applies to all poles, and is oot confined to sea insurance polices 2B Rael Co, Nal Secny Asc Co, Lid, ALR, ABE. 3%, 198, praaps 10 (Cae 3. Emphasis supped 44 Sarkar and Stah JJ.; Raghbar Dayal, J, dissented Séction 2019)— Peal of Introductory. Article 47 of the Ree—Contro. ‘ergy created by the exemption. Tudgmect of the Supreme Court as to Gre tmtrance.50 section 35, If the letter is intended by a person to be used for making a claim thereunder, and, therefore, to be treated as a policy, then. according to the minority view, it is incumbent on the person so intending to have the letter properly stamped for that policy from the very beginning. If it is not so stumped, it can only be used to compel the delivery of the policy, and not as a basis of thc claim. If subsequent stamping of the document to convert the letter into a policy is allowed at the sweet-will of the party standing to gain, then, according to Raghbar Dayal, J. (who Was in the minority), the law would lead to anomalies. 6.1. We are not so much concemed with the meaning of the expression “becgs stamp”, as with the question whether it is proper to equate a cover note with a policy. On this point, the majority us well es the minority took the same view. The following is from the majority judgementst “(16 The learned trial Judge held that the instrument was n't 2 letter of cover but i was in reality a policy of insurance, because it contained a contract ot in- surance. It is not in dispute that if this view is correct, then on paymeit of the duty and the penalty the instrument would be admissible in evidence, under section 35. The Appellate Bench of the High Court, however, was ungle ja accept the view of the learned irlal Judge and, we think, in this the Appellate Bench was right, The fact that a letter of cover contains a coniract of insurance ‘cannot make it a policy of insurance’. As the learned Judge of the Appelinto Bench rightly pointed out, the letier of cover was granted & general exemption from the liability to the daty specified in Article 47, that is to say, it was exampted ftom duty which would, but for such exemption, have been payable on it under that article.” i “Now, under article 47, duty was payable on various policies of insurance. It would follow thet a letter of cover would have been Hable to duty as a policy of insurance if the exemption hhad not been granted®, ‘The letter of cover had, therefore, to contain a contract of insurance, for it would not otherwise have been liable to duty under article 47. But it did not shereby become 4 policy of insurance only for then the exemption and the article would have been in confit with each other,’ We may also mention that the word ‘cover’ itself indicates that peoperty is held ingured or covered by it against certain risks. « (7): What then is a letter of cover ? How is it to be distinguished from a policy of insurene® ‘The Act contains no definition of it or of an ‘engagentent to issue a policy of insurance’, tut, the terms are well Known in trade. The Act is dealing with businessmen and with mercantile doca- ments well known to them. “qt may be shortly steted that a letter of cover no doubt contains a contract of insursaee, but i i not a policy of insurance in the common understanding of that word in the tneds. It. ds well known that in order to obtain an insurance against the risk of fire the assured has first to ‘send a proposal to the insurer and then the Insurer tales elle tne in making enh ao ‘whether it would accept the proposal and undertake the obilgation of covering: ‘7 jseues a policy only efler he is satisfied that it would be a prudent business. propos 54. Experience of trades people has, however, shown that some kind of protection 5 period when the insurer is making the enquites is necessary. This protection is give By Wi falled a letter of cover. 11 is expressly @ contract granting insurance for the bela Gate and until a policy i« prepared and delivered if one is eventually issued or otherwise Mle @ Gate mentioned in i, just 28 a period of thirty days is mentioned in the Interim it Nile issued in his case; see Citizens Insurance Co. of ‘Canada v. William Parson’. We (- present Interim Protection Note satisfied the conditions which would make it a letter Df 7 this sense. TR Raila & Co, ATR. 2. Emphasis supplied. 4. This observation, with respec, is obsoure 44, Bmphasisis supplied, Gtteens Insurance Co, of Canada s. Wiliam Pacsons, (1891) 7 A.C. 96. 19S SC 556, 1956, 1999; Para. 610 (runt view). ZSt t gives protection for @ period of thirty days or the period upto the date of the issue of the policy. An engagement to issue 1 policy means, it seems to us, more or less the same thing a8 letter of cover. A letter of cover, therefore, cannot be admitted in evidence under section 35 as a policy of insurance.” ‘The above passage shows that the Supreme Court made a clear distinction between the two concepts (cover note and policy). Some confusion was, no doubt, created by the general exemption, because the exemption itself is anomalous. We shall revert to this aspect later. “The minority agreed with the view. Raghber Dayal, J., expressly stated in his dissenting judg ‘ment that it was agreed that @ cover note was not a policy. Tt may be mentioned that in the case before the Supreme Court, duty and penalty had already ‘been paid in the court below, pending determination of the legsl questions, The legal objection raised by the insurance company Was that since the letter of cover did not “beat stamp”, it could not be subsequently validated. The Supreme Court observed on this point — (8) ‘The noxt question is whether a letter of cover is itself an instrument chargeable with ‘duty under the Act. Tt is not disputed that if it is not so chargeable, it cannot be admitted in evidence ‘under section 35 by subsequent payment of duty and penalty. Now, section 3 specifies instruments which are chargeable with duty under the Act. It says, ‘subject to the provisions of this Act and the ‘exemptions contained in Schedble J, the following instruments stall be chargeable with duty of the ‘amount indicated in that Schedule as the proper duty therefor respectively, that is to say,—(a) ‘every instrument mentioned in that Schedule which... ...is executed in India on or after dhe Sirat day of July 1899." July 1, 1899 is the date on which the Act came into force. (9) Now the contention of te respondent is that a letter of cover is not an instrament. chargeable, with duty, because the General Exemption in Article 47 of the Schedule exempts it from such duty. This contention was accepted by the learned Judges of the Appellate Bench of the High Coort who pointed out, “It is significant that the words used are not that such letter is ‘chargeable with duty. The words used are “bears the stamp prescribed by the Aet for such policy”. On a proper interpretation this means that such letter of cover is not chargeable with duty as such under the Act but if it bears the stamp prescribed by the Act for a policy of insurance, thea it will shed its inability and will become a competent document oa which a claim for loss could tbe made.” They further observed, “as no statnp is fixed for such 2 letter of cover being not a document chargeable with duty, the statute uses the significant words ‘or bearing the stamp’ and indicates the rate by saying that the stamp must be the same for such a letter of cover which is preseribed for a policy of insurance under the Aét.” Ja this Court Mr. Chatterjee for the respondent also advanced the same argument, (10) We are unable to accept the view which found favour with the Appellate Bench of the High Court, ‘The matter was put in two ways, The first was that an instrument which is exempted from duty by Schedule I is rict chargeable with doty under s,'3.and-a letter of cover is so expressly exempted. No doubt, if.an instrument is exempted by, the Schedule from duty, then it cannot be chargeable. But we do not think that a letter, of cover Is forall purpeses ex- tempted from duty by the General Exemption, We think the proper constriction of the General Exemption clause is that the exemptio is to apply only if the letter of cover is used for com pelling the delivery of the policy mentioned in i. IE it is used for any other purpose, then it is not exempted. That is why a proviso has been employed in the provision and the eflect of that is to take the letter of cover out of the exemption in all other cases. If it is taken out of the exemption, then, of covrse, the present argument fails. We are unable to sec how a letter of Cover can be said to have been exempted for all purposes, if certain things cannot be cletmed ‘under it for the sole reason that it does not bear a stamp. If it were exempted for all pyrposcs, it would be fully enforceable even without a stamp. When “a letter of cover is aot stamped, ‘then nothing is claimable under it encept the delivery of a policy. If, however, it bears the staaap prescribed for the appropriate policy, a claim can be made under it, Tt seems to ws thet if an 1 Emphaas supplied.Other polices ‘Anomaly. comlased. 32 instrument bears a stamp it has incurred the liability for the stamp duty. It has not then been exempted. Therefore, ix cannot be said that a letter of cover is exempted from duty in all cases, ‘When it is not exempted, it is an instrument chargeable to duty.” 6.8. This judgement is confined to fire insurance. Before this judgement. generally on the a whether a “slip” for marine insurance is @ policy for the purposes of the Stamp Law ial decisionst did not help in creating certainty ‘The importance of the above point does not survive? as regards matine insurance policies, because of specific. statutory provisions governing them*. But, the point is of importance ia re- gard to other insurance policies. 6.9. In view of the above position, it was suggested to us that the present scheme of the Act is anomalous and the anomaly should be remedied. Really speaking, a letter of cover is not to be regarded 2s a “policy”, though it may be evidence of @ contract of insurance. This is cleat from the relevant passage quoted from. the judgement of the Supreme Court*. This being the basic nature of a cover note, a cover note, it was suggested, should not be regarded as a policy, and the definition of “policy of insurance” should be amended so as to exclude cover-notes. This would not lead to any loss of revenue, because, after the nationalisation of the general in- surance business, the possibility of insurers not executing a formal policy in order to avoid stamp is almost nil. 6.10. to 6.14. In concrete terms and in detail, the suggestion made to us was ax follows:— (a) A letter of cover ete. should be excluded from the definition of “policy of in- surance”, by an express provision amending that definition. The reasons have been given already in the above discussion. In bricf, a policy and a letter of cover are different from each other. (b) The general exemption to article 47, as at present worded, then becomes a and can be omitted. of {© A provision to the effect that if, at the time of its execution, 2 letter cs engagement (0 issue a policy of insarance bears the stamp required by the Act for such policy, then, it shall not be necessary to stamp the policy again, should bbe inserted. The reasonableness of such a provision is obvious. (@) Under article $ (agreement). an‘exemption in respect of letter -of cover etc. should ’e inserted, The intention is that such tetfers shoutd be totally exempt from stamp duty under any article of the Act. (©) These amendments would lead to no foss of fevenue in the present circumstances. We have, however, after carefully considering the suggestion, come to the conclusion that the matter may be left as it is, the provisions having stood for a long time. 6.15. to 6:18. The above ‘discussion was concerned with a suggestion made during our discussions. We have not received any suggestion from the public for amendment® of the defini tion in response to our Questionnaire. “TG Surainalv. Triton Insurance Co., ALR. 1925 PC. 83,84. GD tare Marine Assurance Certificate, (1895) LLB. 19 Bor, 130,132 (Document which does not contemplate ‘another formal document), (©) Tricamf'v. Biji, ATR. 1923 Born. 142, 143; 24 Bom. LR. 820. (Distinction between cover note and policy) (@) Aimed Shah v. Grindlay & Co... ALR. 1944 Sind 98, 103. (Certfeate of Insurance). : © Reference (1983) LR. 30 Cal. 365, 578. Macloan, C.5)—"A contract for sea insurance fs aoe thing and 1 policy of sea insurance another.” : 2, See discussion 28 to ection 2(20)—"Sea polices”, lfra, ‘3. Sections 24, 2702) and 28, Marine Insurance Adt, 1963. 44. Para. 6.7 supra. 5, Q.11 of the Questionnaire.33 6.19. n 019A) as meaning any instrument covering not less thin fifiy or sich smaller number as the Central Government may approve, either generally or with by which an insurer, in consideration of fa premium paitl by an cniployer er by an omployer and his employee jointly, enguyes to cover. with or without meslical examination and for the sole benefit of persons other than the employer, the fives of all the employces or of any class of them, determined hy conditions pertaining to the enuployment. for amounts of insurance bascd upon a plan which precludes individual solection. of group insuranes renee te any particular It needs no change 6.20. Under sect (a) means any insurance made upon any ship or vessel (whether for marine or inland navigation), or upon the machinery, tackle or furniture of any ship or vessel, or aipon «ty goods, merchandise or property of any description whatever on board of any ship or vessel. or upon the freight of. oF any other interest which may be lawfully insured in. oF relating to, any ship or vessel, and 20), a policy of sea insurance or sea policy (b) inclules any insurance of goods, merchandise or property for any transit which Judes, not only a sca risk within the meaning of clause (a), but also any other risk incidental 10 the trunsit insured from the commencement of the transit to the ultimate destination covered by the insurance : “AWhere any peison, in consideration of any sum of money to be paid for additional freight or otherwise, agrees to luke upon himself any risk attending goods, merchandise, or property of ‘any description whatever while on board of any ship or vesscl. or engages to indemnify the owner of any such goods, merchandise or property from any risk, loss or damage, such agree~ ment or engagement shall be deemed to be u contract for ses-insurance. 6.21. The stamp duty on such policics is chargeable under article 47. Questions exclusively concerning (he rates of stamp duty will be dealt with under that article. But, at this stage, it Should be noted that tho subject of marine insurance has heen dealt with by Iegislation—The Marine Insurance Act, 1963. Its important provisions will be noticed in dus course 621A. Ia Englind, from 1605, legislative measures were passed from time to time relat ing to particular aspects of marine insuranec. We need not mention all of them here, but it shoud be noted that since 1795, it has been obligatory in England to record the contract of ‘marine insurance in a policy which is duly stamped. The effect of non-compliance with such a provision has been cillerently expressed {rom time to time, but, in substance, the position —so far as the statute [aw since 1795 is concerned, —has always been .that if therc is no written polley duly stamped, the contract cannot be admitted im evidence, and until 1959, the contract ‘was not valid abo. 622. It was mally due to the efforts of a Birmingham County Court Judge, (Sir) M. D. Chalmers, in collabcration with practising underwriter, (Sir) Douglas Owen, that in 1894, a Bill entitled the “Marine Insurance Codification Bill” was introduced by Lord Herschell in the House of Lords, Judge Chalmers had for 9 considerable time given his attention to marine ‘cases in the Coutls, and hod interpreted the faw, as it then was, in a careful and lucid manner. He drafted the Bil He cook the view that no code could provide for every case that might arise or always use absolutely accuratc language. He accepted that the cases coming before Tawyers were those in which a code was defective. Eventually. the messure was placed on the Htatate Book in 1906, The Act of 1906 does not set out to remodel the law relating to marine insurance, but merely to codify previous decisions and customary practice. 623. The concept of protection against loss by maritime perils has been traced back to 215 BC, when the Roman Goverment was requited. by the supplicrs of military stores, to accept “all the risk of Yoss, arising from the attacks of enemies or from storms,” to the supplies 1, Soe article 47, nf 2, Dever, A Handbook to Marine Insurance (1957), page 2 24M of Law/77—8 Sectlon 119-4 — “Policy of group ern Stamp duty under article 47 Marine insurance in England History of protection. fariae per34 which the supplier placed in the ships. Round about SO A.D, Emperor Claudius issued guaran- tees to importers in respect of losses arising from storms. The practice of issuing bottomry bonds {on the secutity of a vessel) is supposed to hav: commenced even much earlier. Professor ‘Trenerry* has traced its origin as carly as 2250 B.C. Rhodian lw and «6.24. The “Rhodian” Jaw has a lucid statement of the principle of “general average”, Sustinian. ogden Tae ach which is one of the most importent principles of marine insurance. In fact, the earliest eauncia- tioa of the principle of general average is itself known as the Rhodian Law, and is so designated {ia the Sententiae of Paulus, 200 A.D. the salient points of which state? : “Let that which has been jettisoned on behalf of all, be restored by the contribution of all.” “A. collection of the contributions for jettison shall be made when the ship is saved.” ‘The principle of “general average” received further sanction in the Codex Justinian, The first relevant principle of this Codex is as follows “The Rhodian Law decrees that, if goods are thrown overboard to lighten the ship. all shall make good by contribution that which has been given for all.” 6.25, Marine insurance was well known to tracers in Venice, Genoa and Florence, and the history of marine insurance in Lombardy has become familiar to all those who have to deal with the subject in the West. The House of Lloyds in London, which, for about two centuries hhas been associated with marine insurance, has contributed greatly to the development of the Taw on the subject. In England, the Marine Insurance Act, 1906, is the principal statute on the subject, but the principles were laid down long before that Act was passed. Continental eodifica- tions—oflicial and others—are much earlier. 6.26. The word ‘policy’ is, in modem times, used to indicate the formal instrument incorpo rating a contract of insurance. The word is derived? from Latin “polictatio”, (« promise), through Ttalian “polizza” or French “police”. Oddly enough, in an English policy of insurance, the promise to pay in case of loss is implied, not expressed. Continental policies, however, contain an express promise to pay, within so many days after notice of loss 627, Marine insurance is, in its essence, a protection against the risks of marine adventure, though the concept can be extended fo certain non-marine adventures also. 628, The contract of marine insurance is a contract of indemnity;’and this brings in the docitine of subrogation described as a docttine in which lies the romance of marise insurance. iéontwiore 6.29, Before 1963, Indian courts usually followed principles of the English law as laid down iia in judicial decisions on the subject. som 3&2, 630, Tn 1963, the Marine Insurance Act was passed in India: Section 3 of the Act* reads.— he “3, A contract of marine insurance is an agrecment whereby the insurer undertakes fodcmnity the assured, in the manner and to the extent thereby agreed, guint tnacine losses, tat isto say, the Tostes incidental to marine adventure” Section 24 of the Act® provides as follows = A contract of marine insurance shall not be admitted in evidence unless it is embodied Saacrine polcy in acoordance with this Act. This policy sony be éxecuted and Jroved either at the time whan the contract is concluded, or afterwards.” * ecien 4 te 631, The Act coals, in a schedule, tbe standard form of policy which may tp weed $Ses°Aa—Form This is based on the Lloyd’s policy. Section 4 of the Act provides— (1) A contract of marine insurance may, by its express terms, or by wage of Wadi, be extended £0 2% to profect the assured against losses on intand Walets Or-0m. aj and rink which may be incidental to any sea voyage. ig i. EE mary, Researces It the Orlin of Marne asurance, cited by Dover, A Handbook fo Marne Iaseeach t G50, pase 3. F ». Gove, Handbook to Marios Isaranse (957) rae 4 3. Chalmers, Marine fesurance Act (1560), page 1 1 Section 3, Marin Insurance Act, 1963. 5, Section 24, Marine Insarance Act, 196355 (2) Where a ship in course of building, or the launch of a ship, or any adventure analogous to @ marine adventure is covered by a policy in the foum of a marine policy, the provisions of this Act, in so far as applicable, shall apply thereto, but, except as by this section provided, nothing in this Act shall alter or affect any rule of law applicable to any contract of insurance other than a contract of marine insurance as by this Act defined. Explanation.-an adventure analogous to a marine adventure, includes an adventure ‘where any ship, goods or other movables are exposed to perils incidental to local or inland transit.” 6.32 Some of the other important provision of the Act are in sectious 25-26." Section 25 enacts what a marine poliey must specify. Section 26(1) provides that a matine policy must be signed by or on behalf of the insurer. 633. So much as regards the important provisions contained in tne body of the Marine Insurance Act. ‘The Schedule to the Act contains the form of the policy, Its use is permissible, not mandatory. 6.34. It may be of interest to refer to history of the policy of marine insurance. The form ‘of policy usually employed in marine insurance is generally known as the S.G, Form.? The words “5,G.” mean “ship-goods” indicating that the policy is adapted for the insurance of any interest which is not itself a tangible physical object, as long as such interest 1s pecuniary.” Sir Douglas Owan, an authority on marine insurance in the nineteenth century, said of the Lloyd's policy—almost every clause is conscerated by centuries of usage’. Though the policy is clumsily expressed, iis meaning is clear, because it has ‘generations of legal interpretation hanging. almost to every word: and almost certainly to every sentence’. As the Marryat Committee of 1811 reported, the “doubiful points have been so repeatedly discussed and decided upon in Courts of law that their true legal import is ascertained.” 6.35. It may be stated that Lloyd's policy was settled in its pictent form in 1779, and some of the provisicns are even of much older date.* Though, in the beginning, the English Judges described it as strange instrument, the mercantile community has ching to it, and, in fact, all English insurance law has been developed through cases arising on the policy. This policy appears as a schedule to our Marine Insurance Act also, as already stated. 6.36, Besides, the standard form of policy, certain clauses are added, where required by ‘he circumstances of the case, in a marine insurance policy. Even in such cases, standard forms evolved by Institutes are in force, such as, the Institute of London Underwriters Clauses, the ‘American Institute Cargo Clauses, and what have come to be known as the “York-Antwerp Rules”, which represent a code for voluntary adoption in contracts of affreightment to govern general average loss and contribution. 637. These clauses are also of great practical importance, and many of them have come up for construction before English Courts during the last 150 years. Reference may be made, in thls eonnection, to a lecture to the Insurance Institute of London, delivered by Lord Chorley in November, 1957.* Lord Chorley said — “If the Institute Clauses are the core of modem insurance, their construction is the ‘wrapping, round the core, and without dealing with the wrapping, that is, without construction, we cannot get at the core.” 1, Sections 25-26, Marine Insurance Act, 1963. 2 Ship ard Goods Form. 3, Dover, Analysis of Marine fasurance Clauses (1961), page 4. 4 Raynes, History of Betish Insurance (1964), page 139. 5. Lord Chorley. Lecture on “The Construction of the Marine Policy”. Sections 25-26, Marloe Tasurance Bet Lioye’s potey. ‘Other standard lances56 6.38. The classic exposition of this important matter is contained in a lecture delivered by Sir Patrick Devlin," (when he was a Juxige of the High Cour: of Justice) to the Norwegian Mari- time Law Association on th July, 1952. . Various goes of 6.39 It may be stated that marine policies are of many Kinds” Yonge ee (A) for a voyage, ie. where the contact is to Ks the subject-matter a and fom" ind untae fo “From one place to another or others”. (2) For time, 1., where the contract is to insure the subject-matter for a definite period of time. (3) For Voyage and for time (Mixed). In this case the loss is covered only on a parti- cular voyage and the loss must also occur within that time specified. (A) A floating potiey. “Vis deseribes the insurance in general tems, ame of the ship or ships and other particulars to be specitied later. (3) A valued policy. This specifies the agreed value of the subject-matter, and the value so fised is, as between the insurcr and the assured, conclusive of the value of the subject-matter insared (6) An unvalued or open policy. This docs not specify the value of the subject-matter, but, subject to the limit of the sum assured, leaves it to be subsequently «letermined, Ieaves the Definition in tho 6-40 Reverting, now, to the Stamp Act, we may note that the definition of “policy of Sirgo-4a."°" insurance” in the Act is besed on section 92, Stamp Act, 1891 (Eng) as i then stood. It may. however, be stated that since 1959,° there is, in Englanxl, no separate stomp duty on policies of marine insurance and these policies share the fixed duty of 6 pence ia common with all policies cof insurance except life insurance. In fact section 92 of the English Act of 189) and succeeding provisions were repealed in 1959, Lively Gal. Ut was suggested 10 us, that, in view of the fact that marine insurance is now the sBiwenueress °F subject matter of Iegislation in India, it i appropriate that the definition in the Stamp Act Geefaarine |" stould make a reference to that Act gurange Ac. formal noies x 6,42. This suggestion raises the question whether, by referring to the substance af ihe definition in the Marine Insurance Act, any documents which ate lable to stamp duty wader the present definition in the Stamp Act, will escape duty. The question can be discussed in two aspects. 63. In the first place, there are informal documents, such as, slips, and cover notes, usually handed over 1 marine insurance business pending the execution of a formal policy. The informal note or memorandum which is drawn when the contract is entered into, is called the slip or covering note. It would appear that while such a slip is clearly @ “contract for marine insurance”, it is equally clearly not a ‘poly’ for the purposes of the marine insurance faw. IE the policy is duly wn reference may be made to the cover note for certain evidentiary purposes." Position as to 6.44 Tt was pointed out that though on the question whether a slip is a policy for the sip. purposes of the Stamp aw. there is a controversy,” this controversy is not important ia the Rontext of marine insurance. Sections 24 to 26 of the Marine Insurance Act, 1963, now lay essh Dower is reflected in article 48. It is also indirectly recognised in the Indian Contract Act, section 188, which reads*— “188. An agent having an authority 10 do an act has authority to do every lawful thing which is necessarily in order to do such act. ‘An agent having an authority £0 carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course of conducting such ‘business.” 1, The Powers of Attorney Act 1882. 2 That Act will be examined separately. 3. Section 188, Indian Contract Act, 1872 a 24M of Law i779.Story quoted. Formlites required in Englans. Fors required in when when Tada 62 7.5. Story, in his work on Agency, section 17, says i— “A special agency properly exists, when there is a delegation of authority to do a ‘ingle cet; a general agency properly exists where there is a delegation to do all acts connected with a particular trade, business or employment. Thus, @ person, ‘who is authorised by his principal to execute a particular deed, or co sign a particular contract, of to purchase @ particular parcel or merchandise, is a special agent, But a person, who is authorised by his principal to execute all deeds, sign all contracts, or purchase all goods, required in a particular trade, business, or em- ployment, 1s general agent." In persons on Contracts, volume 1, page 39, a special agent is defined as one authorised “to do one of tWo particular things” and a general ageat as one authorised “to transact all his principal's business er is business of a particular kind.” in Bouvier's Law Dictionary? Volume 2, page 714, the statement is.—“a general power authorises an agent to act generally in bebalf of the principal : a special power is one limited toa particular act” Wharton’ defines a power of attorney as “a writing given and made by one perton authorising another, who, in such case, is called the attorney of thé person (or donce of the power), appointing him to do any lawful act in the stead of that person, as to receive rents, debts, 10 make appearance and application in court, before an officer of registration and the like. ‘it may be either gencral or special, ic., to do all acts or to do some particular Act.” Stroud defines it us an authority whereby one is “set in tum, stead or place” of another to act for him. In an English case,* Coltman J. observed as follows :-— “Where one is authorised, in writing, on behalf ef another and in his mame to do an act, that is an appointment of an attorney within the meaning of the Stamp Ac” 7.6. The definition in our Act also lays emphasis on the use of ame. Thus, if » person rites a fetter to his brother, authorising him to sell their joint property, the letter is sufficient authority for the sale, but is not a@ power of altorney for the purposes of the Stamp Act.” The season is that the use of the name of the sender of the fetter is not expressly authorised in the letter 7.7. Apart from statute, an agency can be created orally, but stanutc may require writing, and there may be special rules apart from statute. Thus. for example, in England, an appointment under seal is necessary to enable an agent to execute a deed ot behalf of his principle. One person cannot authorise another (0 execute 8 deed for him except by deed.” 718. Under the Indian Contract Act,* an agent is a person employed to do any act for another, or ta represent another in dealings with third person.* As a rule, an agent may be appointed without any special formality. in India also, 7.9. Indian statute, law. excepting for a few scattered provisions,?" docs not provide in what cases a written power of attorney is required. 1. Story, cited in ¥; Iyer v. Narasimba Rao. ULLR. 38 Mad. 134, 136. 2. Bouvier, cited in ¥. [ser «, Narasimba Reo, LIAR, 38 Mad. 134, 136. 3. Wharton, Law Leticon (1959) page 784 4. Stcoud, Judicial Dictionary (1953), page 2257. 'S. Welker v. Remmett, (1896) 135 ER. 1181 6. Kela Khan ¥. Nathu Khan, ALR. 1926 Lahore 229. 1, Berkeley v. Herdy, (1826) 5 B&C 385. £8, Section 182, Tndian Contract Act, 1872. 9, Section 182 To. Onder 3 rule 4, Code of Civil Procedure, 1908; sections 32, 33 and 34, Indian Registration Act, 1908.63 7.10. Under the Evidence Act, the Coust shall presume that every document purporting 10 be a power of atiomey, and to have been executed, before, and authenticated by, a Notary Public, or any Court, Judge, Magistrate, Indian Consul or Vice-Consul, or representative of the Central Government, was so executed and authenticated. The Registration Act also requires certain powers of attorncy 10 be authenticated? Registration of a power of attomey muy become compuisory in certain cases.* 7.11, So much as regards the concept of power of attorney and the formalities, if any, requisite for such powers. Reverting to the definition in the Stamp Act, we may note that an instrument chargeable with court-fees is outside the definition—vide the words in brackets. Docu- ‘ments chargeable with court-fees have been excluded, for the reason that otherwise they would bbe subject to double liability. Since an advocate appearing or acting for his clicnt does all his work in the name of his client,® the usual Vakalatnama would, but for the excluding words, ‘pe regarded as a power of attorney. 7.12. The principat enactment relating to court-fees is the Court Fees Act. Schedule If, ‘Article 10, of that Act is material for the present purpose. It relates to Mukhtearaamia or ‘Vakalatnama for the conduct of a case. 7.13. There is a difference of opinion on the question whether @ mukhtearnama or vakalat- nama executed in favour of a person who is not a certificated mukhtear or pleader should be stamped under the Stamp Act or under the Court Fees Act. According o the Alishabad High Cour, the documents referred to in Schedule UL, Article 10, of the Court Fees Act, are restricted to documents given to and presented by duly certified amukhtears or pleaders under the Legal Practitioners Act, and therefore, a mukhtearnama in favour ‘of & person who is not a certificated mukhtcar falls within the definition in the Stamp Act and is chargeable with a stomp duty under this Act, A contrary view has, however, been taken in a Full Beach decision of the Punjab High Court." 7.14, Thus, there appears to be difference of judicial opinion on tbis point. In our view, it w perton who is not a legally qualified practitioner conducts a case on behalf of a party, the power of altorney should be chargeable under the Stamp Act. We recommend that the Act should be amended for the purpose. We may note that the suggested amendment has been generally favoured in the replies to the questionnaire issued by us 7.15. The next definition is of ‘promissory note’ defined in section 2(22) as under :-— (22) ‘Promissory note’ means a promissory note as defined by the Negotiable tnstru- ments Act, 1881 ; Jt also includes © note promising the payment of any sum of money out of any particular fund which may or may not be available or upon any condition or contingency which may or may not be performed or happen.” 7.16. The definition is more elaborate than the one in an carlier Stamp Act. In section 3(25) of the Stamp Act of 1869, ‘promissory note” was defined 2s including every instrument ‘whereby the maker engages absolutely to pay @ specified sum of moncy to another at a time therein specified or on demand or at sight. The definition was omitted in the Stamp Act of 1879. 1. Sexton 85, Indian Evidence Act, 1872. 2, Sections 32(), 33(1), 3364, Tadian Repistration Act, 1908, 3 Soe ALR. 1984 TC, 10. 4 Ramder x. Late Nath, ATR 1937 Nag. 65 5. Horm. Nona Babu, ALR: 1934 Bor. 299, 302. 6 Permanard v. Sot Prsod, Q911) LL-R. 33 Al. 87, 489 (FB) 1. Ganpas © Prem Singh (1922) 13 In. Can, 122,124 (FB) (Lah) dissenting from LL,R. 33 Al 467. 8, Question 13, section 221}-Court Fess Question of ‘struments able to court feet Recommenation. History.‘Negotinble Instruments Act. ‘Tyo parts of the ) whereby any other movable property satisfaction of a debt, or acknowledged to have been received in (c) whereby any debt or demand, or any part of a debt or demand, is acknowledged fo have been satisfied or discharged, or {a) which signifies or imports any such acknowledgement, and whether the same is or is not signed with the name of any person.” 7.37. The principal question to be considered relates to cash memos. tt has deen held? that ordinary cash memo, issued by a shop-Keeper to a purcharer of goods is not a receipt unless it contains an acknowledgement of receipt of the money, Such a memo docs not become chargeable by virtue of initials of the seller subscribed to a warranty written a the foot of it, Even if the initials are taken as amounting to “execucion”, the memo. would ot be a “receipt” within section 2(23). as it is not addressed fo «iy particulnr person and the name of the customer to whom it is given is not mentioned in it 7.38. In an Australian case.‘ the court ruled against liability on a cash memo. where the memo. contained 120 statement that the purchase price had been pai, though the practice was to give such a document only against payment. ‘The same view prevails officially in Great Britain? 1, Question 140) ofthe Questionnaire. 2 Question 15-—Public Officer, 44 Financia! Comssioner v. Indo Burma Wateh Co., UR. 12 Rang. 174: ALR. 1934 Rang. 69. 14. Commmissimer of Stamp Duties (N.S. v. Swan & Co, Pty. (1960) SR.NS.W. 141 and 182 [oub, nom. Woods pBag €or Cnty Actin La Reports 383} ere tn Monto, Stn Dut, (1968), pe 36 ‘5. See the statement of the Chancellor of the Exchequer (made in 1949), H. C. Debates, Vol. 466 (Written Answers) coke. 136-137 Recommendation Toexchideattested fneeruments, pinuint sey cae es Recommendation. Section 2023)— Receipt Cash Meme.Nature of Cash Mero, Recommendation. fexion 329-- seelge Exemption under arte $3 History of, 6 In 1949, Mr, A. Evans asked the Chancellor of the Exchequer whether his regulations still prescribed stamp duty on receipts of £ 2 and upwards and how far it is applicable to retail cash sales. Sic $. Gripps replied : "The stamp duty of two pence upon receipts for sums of £2 or more is stil in force. The form of voucher commonly given by retail shops in cash transactions where the whole of the goods purchased are taken away by the customer on payment of the price, being primarily a document used for intemal book-keeping purposes, does not constitute a receipt, and is not Hable to stamp duty even though it relates to a payment of #2 or more, provided’ that it contains no words stating or impiving receipt or payment of money. The ‘customer is, however, entitled to demand a receipt, and the Stamp Act imposes a penalty for issuing a receipt Table 10 duty but not duly stamped, or for refusing to give a duly stamped receipt.” 7.39. Generally speaking, buying and selling is not complete with the cash memo, but with the payment. Payment is usually subsequent to the cash memo ; but, even if itis antecedent, what a “cash memo” indicates is that the goods had not been delivered on credit. 7.40. {t may be useful to codify the position laid down judicially, by inserting a suitable Explanation, say, on the following lines :— “Explanaiion—A cash memorandum, that is 10 say, a memorandum which records particulars of goods sold or services rendered is not a receipt, if it does not acknowledge that any money or any Bill of exchange, cheque ar promissory note hhas been received, notwithstanding that it mentions the consideration for the sale cr for rendering the services.” We recommend the above amendment. We may note that the suggested amendment has been generally favoured in the rephes to the Questionnaire issued by us. 7.41. The next clause deals with “settlement”. We shall consider at length the definition of settlement” and the charging provision in article 64 relating to declaration of trust*. 712, Section 2(25) defines a “soldier” as including any person below the rank of nox commissioned officer who is enrolled under the Indian Army Act, 1911. The definition was inserted by the Repealing and Amending Act, 1928 (18 of 1928). That Act, by amending article 53, gave statutory effect® to exemptions from stamp duty which had previously been granted by notifications, and also introduced this definition. As we shall see latort, while the scope of the definition of “soldicr” has remained ninchanged, the scope of the exemption in arti- cle 53 was widened. 7.43, ‘There does not appear to be any section in the Act using the expression ‘soldier. But it seems to have been employed in some notifications, granting remission,—for example, in respect. ‘of documents chargeable as a ‘power of attorney’. Tr ako occurs in one article, as already stoted. 7.44, Under article $3, clauses (@, (@) and (0, certain documents executed by soldiers ete. are exempt from the stazup duty on receipts. The reasons for granting this exemption from stamp duty is not very easy to discover; but it can be presimed that the decision to exempt such receipts ivas taken as a matter of public policy. It would be of interest to note in this connection that oncessions to soldiers in the matter of taxes have heen known since the period of Roman law. For example, G@) There must be an instrument. (i) The instroment must be one mentioned in the Schedule to the Act. Gil) The instrument must be “executed”. . Giv) ‘The instrament must be executed in Tndia—clause (a)—or must be received in Tndia in the manner specified in clause (b) or clause (c). () If the instrument is not executed in India and is not a bil of exchange or promissory note, etc., it must relate to any property situated in India or to any matter of Shing done o to be done in India. This is provided in clause (c) of section 3. ‘Baraptions, 8.3. Even where the general conditions of chargeability, as mentioned above, ara satisfied, ‘the instrument may be exempt from duty. Such exemption may arise by reason of — (2) the proviso to section 3, or (®) some other section of the Act, or © A specific provision below the charging entry in the Schedule, under “Exemption, or (B) a notification issued under section 9 of the Act, or 7 (©) A special faw—for example?, section 115, Presidency Towns Insolvency Act, 1909, section 51, Land Acquisition Act, 1894, section 28, Co-operative Societies Act, 1912, er section 29, Reserve Bank of India Act, 1934 “The principal provision—i.e,, the chargo—is to be found in clauses (a), (b) and (c) of the ‘section, The provisos grant exemption for two cases. 8.4. The first proviso to the section relates to instruments executed by the Government, etc, ‘The scope of the exemption has been narrowed down by successive Stamp Acts. Thus, under the ‘Act of 1860, all instruments in which the Government was a party, were exempl?. Under the Act»: Se oman ad Ta PEL Patan mr ane mec tow 2n of 1862, instruments executed by or on behalf of the Government were exempt from stamp duty. Under the Act of 1879, the exemption was practically in the same words as the present Proviso, ‘The second proviso, relating to registered ships, was inserted at the Select Committee stage in the present Bill, in order to bring the Indian law in line with the English law'. Act 19 of 1838, mentioned in the second proviso, is the Bombay Coasting Vessels Act, 1838, which provides for the registration of vessels which are trading coastwise and also fishing vessels and a harbour draft. Act 10 of 1841 also mentioned in the proviso, is the Registration of Ships Act, 1841. We shall deal later? with the effect of repeal of these Acts on section 3, 8.5. The place of execution of an instrument is of importance with reference to the charge Plse.of fof duty a5 well as with reference .to the time of stamping. The provisions applicable to the fiapiiy to following three broad categories of instruments (assuming, in each case, that the instrument is Soy gyt tone chargeable to duty under the Schedule), are as follows :— (a) Instruments executed ‘ofally in India are governed by section 3(a) and section 17. They are charged uader section 3. The general rulo’ is that they must be stamped at the time of execution. () Instruments executed totally ouside India ate governed by section 3(b) of section 346), as the case may be, and section 18. They are chargeable under section 3(b) or 3(c). The green! rale', except in the case of promissory notes, etc. is that they must be stamped, within ‘he prescribed time limit, after they are received in India. But it must be rememberéd that this sale applies only where the instrument (besides being chargeable under a specific article in the ‘Setiedule) relates to property within India or to some act er thing done or to be done in India. Otherwise, there is no obligation to stamp the instrument, even if the instrument is received in India, if it is not subsequently “executed” in India®, (© Instruments executed partly outside India and partly in India are governed by section 3(a) and section 17. They are chargeable under section 3(a). It is to be noted that they fall section 18, because section 18 applies only where the instrument is executed totally ‘outzide India’, Such instruments must be stamped at the time of their (Girt) execution in India’. ‘There are, thus, three principal points of timo,—execation, bringing into India, or fist executién in India—which may become relevant to the charge of duty and the time of stamp- ings: Satpal ‘From this charge of duty, there is an exclusion, contained in the first proviso to section 3. * 46. Under the first proviso, no duty shall be chargeable in respect of— Section 2, fret “@) any instrument executed by or on behalf or in favour of the Govemment in cases where, but for this exemption, the Government would be liable to pay the duty chargeable in respect of such instrument”, ‘A question of practical importance arising out of this proviso is this. What are the cases vahies; “but for this exemption the Government, would be Table to pay the duty, chargeable”, bvneapect of an instrument ? The answer may appear do be simple, but it is not really so. This ig baamse there is no specific section in the Act dealing with the question—who is liable to pay tety ? ‘Under section 29%, in the absence of an agreement to the contrary, “the expenses of pro- wééig the proper stamp shall be bome” by the specified persons. This section, as the words 1 Sesion 721, Merchant Shipping Act, 1894 and the (Eaglish) Stamp Act, 1891, First Schedule, Second general 2, Seo tyra Porn 8.9). 3. ieabon 17. 4 Section 18. ‘5. Hite iter executed in India, tegory (6 in our analysia becomes 6, Catmpory (0), pra. 1. Becton 17. 2, Seetion 29.n quoted above show, does not state that the specified persons “shall pay the duty”,— though the ‘marginal note to the section reads—“Duties by whom payable”. 8.7, The question then arises—Can section 29 be utilised for the purposes of the first proviso to section 3, when the Government, as a party to an instrument, undertakes to bear Ihe expenses of the stamp duty, and is the case to be regarded as falling within the frst proviso to section 3 50 as to have the effect provided therein, namely, that “no duty shall be charge- able” on the document concerned ? ‘The position in this respect cannot be said to be beyond doubt. One view on the subject is that the exemption under the first proviso will not apply in such a case. Apparently, how- ever, the contrary paractice seems to be followed in the Goverament of India. 8.8, It is desirable that the position om this point, which is of a frequently recurring nature, should be indicated! more clearly. We, therefore, recommend the insertion of the following words at the end of the first proviso— “on where the Government has undertaken to bear the expenses o| the stamp duty”. Such an amendment will avoid controversies arising from the fact that the language of section 29 is not identical? with that of section 3. ‘The proviso speaks only of the “Government”, but the view bas been taken? that whace a ocal body acts as a Government agency for the transaction. of duties devoloving upoe Govers- ment as part of its ordinary administration, such as making roads, erecting Government build- ‘ngs, ete, then this proviso would apply. We do not consider it necessary to suggest any amen- ment on this point. 8.9. Section 3, second proviso, is as follows -— ‘Provided that no duty shall be chargeable in respect of — @) Any instrument for the sale, transfer or other disposition, either absohutely ‘of by way of mortage or otherwise, of any ship or vessel, or any part, interest, share or property of or in any ship or vessel registered under the ‘Merchant Shipping Act, 1894, or under Act XIX of 1838, or the Indian Registration of Ships Act, 1841, as amended by subsequent Act” ‘OF the three cnactments, referred to ia the proviso, the Merchant Shipping Act, 1894 (Eng, bas been reptealed by the Merchant Shipping Act, 1958. The Coasting Vesscla, Aat (19 of 1838) has been repealed, in so far as it applies to sea-going ships fited with: meabanical means of propulsion and to sailing vessels, by the Merchant Shipping Act, 1958. The Indian Registration of Ships Act, 1841, has alsp beea repealed by the same: Act. 8.9A. It is now appropriate if referenge to the Merchant Shipping Act, 1958, is sub- stituted in place of the frst and the third of the enactments referred to in the proviso. 8.10. This disposes of section 3. We would, at this stage, refer to a new point mlcvast-te the effect of exemption. A doubt sometimes arises* as to whether the cxemption given byt oxi article in the First Schedule is to be regarded as velid only for the purposes of that stich, of whether the exemption is to be treated as a gentral one. In most cases, the later is the datas ton, and a specific provision to that offect could be usefully. added. ‘Manual, page 18 (Citing Board Precedents) 396, Mis. 20th February, 100 aad 196, 1 2 Nee Py, aa blak. Sump Act 0951, bu 22+ 2. Pare 8.6, supra. : a Pact FB, Ch 3, paragraph 3, (Citing Financial Commissioner's lech Min ‘3, Coa Sein cite Chak Geno oe Bey Ae 28) oe 2 = or very ao anctioa X5Ke) inthe context of « bond consisting ofan obigation dale Se TRE caanpion tne tee 5 exeapuon G@)—Awerarat fo ole err (@) Raghabar Dayal v. Emg., ALR. 1934 All 21; () ALR. 1936 All. 465; Refrence—Collacor of Mma v, Lakshnl Chand; 7 (©) ALR. 1927 Nag. 72, 73: Collector of Nemar¥. Laksbod Chand; (€) Mira Begun, ALR. 1935 Lab. 122a Whore the exemption is intended to be applicable only in respect of the chargeability of an instrument under the particular article, a specific provision to that effect could be inserted in that exemption. Such a provision would be in harmony with the opening words of section 3 also. BLL. We, therefore, recommend the intertion of a new section on the following lines :-~ “3A. Where, by virtue of an exemption provided for under an article in Schedule 1, ‘an instrument is exempted from duty, the instrument shall, in the absence of an express provision to the contrary; be exempt from duty under every other article 8.12. A document executed outside India 1s, at present, lisble to stamp duty, even if it is already stamped with the duty chargeable under the law of the foreign country where it was executed, provided the document is received in India". There are special provisions for bills of ‘xchange payable otherwise than on demiend, and for promimory notes, drawa or made out of Sadia, and accepted or paid or presented or endorsed, transferred of othervise negotiated in India?, But, io general, the document has to be stamped within the prescribed time after being received in India, ifthe other conditions of chargeebility are satisfied. B.13. We are of the view that some provision ie needed for relief in respect of documents which have slccady been stamped under the law of a foreign country where the document was executed. With the growth of intemational commerce, such occasions are likely to increase, and, while it may not be necessary to grant an exemption for all cases, a limited exemption as 10 transactions with or between Ladian citizens in respect of documents executed outside India and Property stamped under the law of the foreign country, could be inserted. 8.14, The Indian legal system has several laws containing provisions relating to relief against double taxation. A precedent, for example, is furnished by the Income-tax Act*, Ia that Act, there ure two provisions desting with double taxation,—one, is confined to cases of agreemant ‘with foreign countries, while the other is not so confised. The former—section 90—is as follows :— "90. Agreement with foreign countries —The Central Government may enter into an apecmest— {@) with the Governmont of any country outside Todia for the granting of relief in respect of income on which have been paid both income-tax under this Act and ‘income-tax in that country, or (©) with the Govemment of any country outtide India for the avoidence of double taxation of income under this Act and under the corresponding faw in fores in ‘that count and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement”, In the Estate Duty Act* also, there is 4 provision for avoidance or cele of donble taxstion, ‘Will, reepoct to estate duty, as follows -— : “30. ‘The Central Government may enter into an. agreement with tho Goverament of ‘anty reciprocating country for the avoidance or relief of double taxation with res- pect to estate duty leviable under this Act and under the corresponding law in force in the reciprocating country and may, by notification in the Official Gazette, ‘make such provision as may be necessary for implementing the agreement. 1. Meowion 26) (See apr). 2 Section 300), 3, Sections 90 and 91, Tocomerax Act, 1961. 4, Section 30, Fstate Duty Act, 1953 Recommendation. Effect of ‘exemption under i ane ie ‘Section 33 Instruments executes inde, Relief againat double taxation. PrecedentsNeed fot lie. res 4 Explanation —The expression “reciprocating country” for the purposes of this Act means any country which the Central Government may, by notification in the Official Gaaette, declare to be a reciprocating country. ‘There is another precedent in section 131 of the Trade Marks Act’, 8.15. In the fight of these precedents, and also on principle, we have carefully considered. the suggestion, and we are in broad agreement with it, We do not, however, think that the pro- posed provision should be confined to transactions with or between Indian citizens. It could. ‘extend fo all documents, At the same time, we are of the view that the grant of such relief should ‘be on the basis of rciprocity only, and in pursuance of an agreement,—es in the Trade Marks Act, We, therefore, recommend the insertion of the following section in the Act :— “3B. (1) With a view to the fulfilment of a treety, convention or arrangement, with any ‘county outside India which affords to insiruments executed in India the same concessions as can be granted under this section in respect of instruments executes outside India, the Central Government may, by notification in the Gazeites declare such country to be convention a country for the purposes of Act. (@) Where an instrument is ekecuted in a convention couatry and is brought into the territories to which this Act extends, the instrument shall, if duly stamped in the convention countzy under the law of that country, be deemed, for the purposes of this Act, also to be duly stamped”. 8.16, The simple case of one instrument effectuating a wansaction is dealt with by the general provision in section 3; but there might be cases where there are several instraments ‘effectuating a transaction. The ordinary rule is that stamp duty is levied oa un instrument endl HOt ‘on a transaction. But, if this rule is applied literally and without exception, then thare ie practical hardship and unnecessary inconvenience. To deal with such a situation, qome,apeqigt Provisions are usually considered desirable in the Stamp Jaws of all countries, In our Acty, situation of several instYuments used to effectuate a single transaction is dealt with in seetion 4. ‘The section is, however, confined to transactions of sale, mortgage ot settlcment. ‘Thé bedad rele fs chargeable with the duty prescribed in the First Schedule, and each of the other iastammogit is chargeable with a duty of one rupee, instead of the duty, if any, prescribed for it in the ‘First-Schedule. ‘Under sub-section (2), the parties may determine for themselves which of the instraments 0 ‘employed shall, for the purposes of sub-fection (1), be deemed to be the principal instrament. But there is a proviso tc the effect that the duty chargeable on the instrument so determined whall be the highest duty which would be chargeable in respect of any of the said instruments #6 exaployed. 8.17. In England, the principle is the same, but is not confined to conveyances. Refetring ta! the situation where a single transaction is effected by more than one instrument, an Bagiislt ‘writer sayst — ej | fa “The generai rule in these cases (which is sometimes stated expressly in the Adi) ‘that ad valorem duty is not paid more than once, and that fixed uty Is ‘paid morc than once where each instrument taken by itself attracts a stamp, because it is a deed". Fi fae 1, Section 131, Tindo Marks Act, 1988. 2, Section 131, Tendo Marka Act, 1956, : +3 Te opening portion speaks of “scl”. The latter partion speaks of “conveyance”, because the Sabpdule eieraes, duty onder that oame, 4, Monroe, Stamp Dutes, (1964, page 31.1 ‘Thus, in England, in a case of a contract comprising an offer and acceptance!-* under hand, ‘one 64, samp is sulficient, “which logically should be affixed to the acceptance”* 8.18, Having considered all aspects of the matter, we see no reason why the principle enacted in section 4 should not be extended to all transactions. Such cases may not be many ; ‘but the example of a gift or partition should be cited. The section should, in our opinion, be extend to all cases where several instruments are employed for completing any transaction. ‘This view has been generally favoured in the replies to our Questionnaire, Also, in our view, there is no need (o charge duty on the supplementary instrument, On this point, we accept a suggestion made to us* by the Gujarat Bar Council. If this approach is accepted, it will be necessary to make other consequential changes also. We, therefore, recommend that section 4 should be revised as follows :— Revised Section 4 4. (1). Where, in the caso of any transaction, several instruments are employed for com- pleting the transaction, only the principal instrument should be chargeable with the duty Bresoribed for it in Schedule J, and each of the other instruments shall, instead of beine charge- able with the duty prescribed for it in that Schedule, be exempt from duty. (2) The parties may determine for themselves which of the instruments so employed shall, for the purposes of sub-section (1), be deemed to be the principal instrament : Provided that the duty chargeable on the instrument so determined shall be the highest duty which would be chargeable in respect of any of the said instruments employed 8.19. So much as regards section 4. Its converse is to be found in the next section. ‘Under ection 5, any instroment comprising or relating to several distinct matters shall be hareeghle with the aggregate amount of the duties with which separate instruments, each com- prislag or relating to one of such matters, would be chargeable under this Act. ‘This section 's the converse of section 4, and deals with cases where one instrument comprises of relates to several distinct matters. Here again, the general role tha: stamp duty is levied on an {instrument and not on a transaction has had to be explained—this time, in the interests of ‘eveque—by providing that such instrument will be chargeable with the aggregate amount of the duties with which separate instruments, each comprising or relating to one of such matter, ‘would be chargeable under the Act. It is,,ngain, in the interests of revenue that it overrides the next section?, which deals ‘with instruments coming within several descriptions in the First Schedule. 8.20..No doobt, the apparently simple provision in section 5 is not devoid of difficulties in itu application. A writer on the Inw of Stamps? says : “Scarcely any subject, within the range of the Stamp Laws, is of so embarrassing a nature, in practice, as that which falls under “foe @ividon of “Tostruments’ relating to several distinet parties or matters.” i: ; such difficulties curmot be solved by an amendment of the law, and it is difficult » ‘a better and more precise formula. "G91 This takes us to section 6. Tn order to appreciate the significance of that section, ‘tt 14 dtteary to examine the scheme of the Act. The scheme of the Act as regards documents eet ene — algo toned oral o 6 conduct Tae Hap Gari v. Carbotte Smokeball Co., (1892) 2: Ls Foe trpal 1099.1 0 256 i 2. ‘discussion, see Appendix. 1 ‘3 Moros, Starap Duties, (1964) page 31. §- Of Here Por. (828)? Moo page 25, se in Hab, eB, Vo 38, page 296, pase S10, 5. Question 6. S.No, 74 (Gojarat Bar Counc) under Q. 22 of the Questionnaire issued by the Commision. 7, Bee the opening words of section 6—"Subject to the provisions of thellest preceding vectioa.* 8. The late Me, Tiley, quoted by Donogh, Stamp Act, (1935), page 188. ‘Recommendation, Section 5. Section 6,Gist of Section 6. 16 ‘The First Schedule to the Act specifies the duties which are chargeable upoa certain descriptions of instruments, ‘There may be instruments falling within more than One taltgery: ‘They have to be specifically dealt with, since the general rule in sections 4-5 would not yield a fully adequate test. Section 6 provides that in such case the higher or highest duty is chargeable. 8.22. Section 6,—to put the matter very broadly,—provides that an instrument so framed as to come within two or more of the descriptions in Schedule I, shall, where the dutics chargt- able thereunder are different, be chargeable only with the highest of such duties. This rule fs, however, subject (0 an important qualification, which is expressed in the section by the words “subject 10 the provisions of the last preceding section”—ie, section 5. Section 5, it will be recalled, provides that an instrument comprising ot relating to several “distinct matters” shall be chargeable with the aggregate amount of the duties with which separate instruments each compriting or relating to one of such matters would be chargeable, under the Act. The qualification in section 6 dependent on section 5, is of importance. Tn fact, it.may be noted that in the previous Stamp Act 18791, sections 5 and 6 were combined together. If a document in reality, one instrament, though different names are given to it, section 6 will apply. But if, in fact, it comprises several instruments, then section 5 will apply. In order to bring & document within the terms of section 6, it has to be read as a whole? 8.22A. It may be convenient to analyse the relevant provisions* Group A. (U) A document which really contains more than one instrument must be stamped separately in respect of each. (This follows from section 3). (2) Am instrument which relates to several distinct matters must, except Where, epressa provision to the contrary is made, be separately and distinetly charged in respect of eath initter, and, for this purpse, distinct provisions constituting together the consideration for an inéthd- ment Tiable in respect of one of them to ad valorem duty are treated as separate and distittt matters (section 5). But two other cases may arise, Group B. (3) Am instrument may relate to several matters which, nevertheless, camlot be regatdéa ‘as distinct ; (section 6), and (4) An instrument, though relating substantially to one matter, may fall into one category, ‘or another, according 10 the view adopted of its legal operation (Section 6). The Act has distinet rules for Group A trom Group B. ‘The fine of division between classes (2) and (3) may sometimes be difficult to draw. But it is not possible to improve the position by any verbal amendments. 8.23. It is well established in England thet where a document comes within each of two categories chargeable with duty under the (English) Stamp Act, 1891, the Crown entitled to only one of the dufice, bur it may chocse the higher. A case tit WBAE @ to ‘House of Lords may be cited. The United States of Mexico had issued ‘gold bch notes’ with a promise to pay prirtcipal and interest to the bearer at fixed dates either ‘of, at the option of the holder, in Londtm, There was evidence that the notes ‘on the London and other Stock Exchanges. It was held; the notes being, ia ‘missory notes and marketable securities within the Stamp Act, 1891, they were higher duty imposed by that Act upon marketable securities. Collins, MR, if thie his judginent in the Court of Appeal, observed that the cases established that not only the right to treat, but is bound to treat, an instrument as assessable ander which involves the higher stamp duty. 1 Gestion 7, Indian Stamp Act, 1879. 2. @916 37 Indian Caes 984 (Madea. 3. Analysis adapted from Doaogh, Stamp Act, (138), pago 189. 4 ‘Speer Brothers, Comms, (1908) A.C. 92 aftiming (1907) 1 K.B, 246, 253, Hd E E ay tall fre” Lord Lorebura, in the course of his judgment in the House of Lords, affirming this view, observed :— “In my viow, the document falls within both descriptions, and where a document is by its description chargeable under the Stamp Act as a promissory note, and js also chargeable under the statute as a marketable security, the Crows has a choice whether wo charge under the one or under the other description, If the Crown does claim that the document shall be stamped at the higher rate within one part of the Act, it is no answer to say that there is another part of the Act under which the same document onght to be charged of a lower rate, It can omly be cherged once.” ‘These observations of Lord Lereburn lucidly explain the significance and rationale under lying the statutory provision in section 6. Briefly, the gist is this :-— 4) Daty may be charged only ones. G)_But it must be the higher, and not the lower, of the two. 8.24. This, in fact, is the substance of section 6. An instrument so framed as to come within two or more of the descriptions in the First Schedule, is to be chargeable with the highest of the duties. The proviso to the section deals with the special situation of a counters part or duplicate of any instrument chargeable with duty, where duty has been paid in respect of the (principal) instrument, There is not much scope for improvement in section 6. What remains to be noted is only the special provision, contained not in this Act, but elsewhere, 8.24A. We have in mind seetion 17 of the Negotiable Instruments Act?, which gives 8 right to the holder of an “ambiguous document” to treat it as a promissory note, or as a Dill of exchange. By “ambigucus document” is meant a document which can fall wider either, According to judicial interpretation, this privilege cannot be taken away by anything ‘contained ia the Stamp Act, and in this sense, section 17 of the Negotiable Instruments Act aust be read as overriding the Stamp Act? 8.25. In our view, it is desirable to codify this interpretation by adding a saving to section 6, to the effect that nothing in this section shall affect the provisions of section 17 of the Nego- liable Instroments Act, 1881. We recommend that an Explanation shotld be added accordingly. ‘Such an atmendment has been generally favoured in the replies to the Questionnaire? issued by us. 8.26. We now come to section 7. Before 1963, section 7 was as follows “7. (D) No contract for sea-insurance (other than such insurance as is referred to in section 506 of the Merchant Shipping Act, 1894) shall be valid unless the same is expressed in the sea-policy. (2) No sea-poticy made for time shall be made for any time exceeding twelve months. (3) No see-policy shall be valid unless it specifies the particular risk or adventure, or the time, for which it is made, the names of the subscribers or underwriters, and the amount or amounts insured. (4) Where any sea-insurance is made for or upon a voyage and also for time, or to extend to or cover any time beyond thirty days after the ship shall have arrived at her destination and been there moored at anchor, the policy shall be charged with duty as a policy for or upon a voyage, and’ also with duty as a policy for time.” 1, Section 17, Negotiable Instruments Act, 1881 2 Alagappa Cheth v. Narayan, (1982) 63 Madras Law Jourmal $48; A.LR. 1932 Mad, 765, 766. 2am 24 Mof Lan/Tt—1, ‘Section 6— Substance. Negotiabie Instruments Act. 37 and 58 Viet, co.Cave aw. B After the passing of the Manine Insurance Act, 1963, only sub-section (4) survives. 8.27. There are only 180 reported eases om the section, A Bombay case! dealt with fone point as to whether mere initialling of a document was sulficient within the meaning of sub-section (3) of section 7, which provided that no sea policy shall be valid unless it “specifies” the names of subscribers or underwriters. The Court iekd, that initialling was suflicient to “specify” the names within the meaning of section 7(3). A Caleutia caso has dealt with the scope of sub-section (1) of section 7 (now repealed), fand held that a cover does not amount to a valid policy of marine insurance. ‘These cases are no longer of importance for the Stamp Act, since sub-scctions (1) to (3) have been repealed. So far as sub-section (4) is concerned, we are recommending its deletion, for reasons tp be given? under Article 47, APPENDIX 1 Section 4-English law as to two instruments used 10 effectuate one transaction ‘The general rule in England is that ad valorem duty is not paid more than once, and that fixed duty is paid more than once only where each instrument taken by itself attracts stamp, eg. because it is a deed. ‘This. in a case of a contract comprising an offer and aceep- tance under hand one 6d. stamp is sufficient, which logically should be affixed to the acceptance. ‘As regards conveyance, it is expressly provided by statute, that where there are several instruments of coaserarce, the principle instrument orly is to be liable to ad valorem duty. fand the others to such duty as they may be liable, not excceding the ad valorem duty: + © Section 58(3), Stamp Act, 1891, is as follows :— “58..(3)- Where there, arc. seyeral. instruments of conveyance for conmaleting the purchaser's title .t0. property,sold, the, principal igstryment of conveyance only js to be charged with ad, valorer. duty, and: the other instruments are ta be respectively charged with such other duty as they..may be lisble to, but suck lastementioned duty shall not exceed the ad valorem duty payable in respect of the principal instrument.” Section 61 is as follows: -— “G1. (1) Tn the cases hereinafter specified the principal instrument is to be ascer- fained in the following manner : (a) (b) [Repealed by Finance Act, 1949, s. 52 and Schedule XT). {e) Where in Scotland there is a disposition or assignation executed by the seller, ‘and any other instrument is executed for completing the title, the disposition ‘or assignation is to he deemed the principal instrument.” (2) In any other case the parties may determine for themselves which of several instruments is to be deemed the principal instrument, and may pay the ad valorem uty thereon accordingly. ‘The position for other instruments is the same,® though there are no statutory provisions. ‘As the Revenue have in England never insisted on double ad valorem duty in cases where ‘two instruments are used to effect one transaction, there is very Tittle authority on the point, 4s no one cares to contest the matter. 1 sessw pani nd Comps Vt Re AIR IB Rom 142 Gia CT Crump 39 Tr ae naan ti (89). NOM, 9, 9, 3, 984 ih Fekete Oat ea san Hi Sy Ak Mee don mo arc. Wa, § See aae) ns cy Samo Ack 1891 £ SERS Sto Dats (969, pe9 ‘There appears to be an exception to this general rule where two securities are given for the same debt. Thus, if 3 person gives a bill of sale and a promissory note, to secure & debt, a separate ad valorem duty i payable on each? This exception has received statutory recognition, inasmuch as, under the heads of charge “Bond, Convenant,® etc.", a separate and lower rate of ad valorem duly is provided for colla- feral securitics. The ad valorem duty on the collateral securities is, in some cases by statutet ‘and in others by extra-staustory concession—limited to 10s. But there are, stil, cases where two ad vatorem duties are payable APPENDIX 2 Points concernmg giits, exchanges, trusts, etc. under section 4 (a) Conditionat gites Though a gift is usvally unconditional, it can be conditional. It is to be noted that a if. is a species of transfer, and is, therefore, subject to all the provisions of the law of transfer ‘of property relating to conditional transfers. Like other transfers, a gift, therefore, may be subject to a condition precedent If the condition is not invalid,* the cordition will be recog- ised by law. A gift to two sisters on the condition that they should live apart is valid.? Iz A gives RS. 500 to B on condition that B shall marry C, the condition is valid. But, if the condition is inmoral or illegal, then it is void: Similarly, a gift may be subject to 2 condition subsequent.? In a Madras case,” a gift ‘was made by’ person sentcuced to transportation for lite to relation, on the condition that the land gifted should be given back if the donor returned 10 his village. Im fact, section 126 of the Transfer of Properly Act even provides that the donor and donee may agree that on the happening of any specified event not depending on the will of the donot, a gift hall be suspended or revoked. A condition en, therefore, even go to the extent of providing for revocation, ‘Apart from the Transfer of Properly Act, conditions are recognised in respect of gilts by Maslin law also!™!? ‘Though the Transfer of Property Act, section 123, dealing with the acceptance of a gift, rot require the acceptance 10 be in writing, andl though the acceptance can be inferred or does 7 jonal gifts, it is pru oral, there can be @ written acceptance hy the donce, atid, in case of cont dent to have a written acceptance. A gift co which 2 condition is atlached is not “sale”, because, as defined in the Transfer of Property Act", a “sale” must be omly for @ price, and “price” here means money only.*+ Tt has been specifically held'® that a transaction which is in consideration of the transferor's epatd for the transferee, who agreed to maintain the transferor, is not @ “sale”. ‘Monerary Advance Co. ¥. Cater (1888) 20 Q.B.D. 785, 786. Promissory notes are no longer Hable to ad valorene duty in England, Stamp Act, 1891, Schedule 1 Revenue Act, 1903, section 7, limiting the duty on callaeratsecuifes to 10s, Section 21, Transfer of Property Act : Section 25, Transfer of Property Aci. See particulary illustration (0) Fedemey ». Woodhouse, 1184) 7 Beas. 437, 49 E.R. 113, cited in Mills, Teansfer of Property Act (1966), page 72, footnote (2), 8. Ram Saran v. Bel (1884) TLR. 6 Allahatad 313. 9, Seetion 31, Teanser of Property Act. 1b. Venkataraman ¥. Axyaswamy, ALR, (923 Madras 67 43 Madras Law Journal 340. 11, Toabj. Muslims Law (1968) page 305, page 366 illustration (1, and page $06, illustration (1) and cases there cited, 12 Abo tie leading ease of Navab Uindad Ally Khan, 11 MLLA. 517, 543, 547, as explained in A.LR, 1922 P.C. 261. 13, Sexton 54, Transfer of Property Act 18. Afadon Pili v. Biadokalt, ALR, 1922 Madras 11 15, Rove Ravn v. Meo Chand, ALR. 1959 Puninb 117. (Case rating to sight of pre-emption).80 Even if conditional gifts are not regarded as gifts, they are certainly not “sales”, So they do not, at present, get the benefil of section 4, Stamp Act, which is confined to salcs, mortgages and settlements. (b) Tivo documents constizuting a git. If there are two documents relating to a transaction of gift, the case does not, at present fall under section‘, unless the document is a “settlement”. In an Allahabad case,’ T. in consideration of love and sficetion and the promise to be maintained by his brother M, executed a deed of gift of all his property in favour of M, and M executed another deed whereby M promised that during the hfe time of T he would pay T’s expenses. The High Court held that the second deed executed by M was one which came within section 4, because the transaction may fairly be said to come within “scitlement”. As to the unity of the transactioa, the Court observed thar the two instrument were intended by the parties to be employed in completing one transaction. In that case, the Court held the transaction to be one of settlement (ao detailed reasons are given discussing this aspect of the matter), If, however, the parties had mot been brothers, the document would not be regarded as 2 settlement, and the transaction would be substantially one of gift,-~but not covered by section 4, The case is referred to here to show how section 4 could be usefully extended to gifts. Tn a Bombay case,* the document marked A was a document on a three rupees stamp paper, and was one of conveyance of immovable property absolutely for Rs, 275. On the same deed of sale, the individual nephew of the executant endorsed his consent 10 the sale. Tt was held that the endorsement of consent and the conveyance were several instruments ‘employed to complete a transaction within section 6 of the Act of 1879 (present section 4), and the consent ought to have been written on a separate stamp paper of the value of one ‘rupee. TLis case is cited here to show how, in reality, the situation could arise in relation to gifts abo, namely, where A executes a gift and B, who is his undivided nephew, indicates his consent, At present, the case could be outside section 4, but the transaction of gift is but one, and it is fair that there should be only one duty. ©) Tris. ‘Then, there is the case of trusts, the machinery of trust can be employed to effect a transfer for the benefit of certain persons who are not related to the author of the trust, The Trust Act does not require that there should be only one physical instrument of trust. ‘The case would be outside present section 4, but ought to be covered by it, there being ao reason why double duty should be charged on two deeds of trust and not on two deeds of settlement. (d) Exchange. ‘There is ulso the case of exchange. When two persons mutuelly transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an exchange.* A transfer of property in completion of an exchange can be made only in the manner provided for the transfer of such property by sale. This is what the Transfer of Property Act provides. But this provision dees not necessarily attract the beneficial provisions of section 4 of the Stamp Act. It merely deals with the rules as to registration etc. (e) Partnership. ‘Then, there are also cases of partnership, where the stamp duty is higher than in case of an ordinary agreement. 1. Stamp reforence, (915) LR. 37 Allahabad 264 (ull Bench 2, Hanumappa, (1888), LR. 13 Bombay 281. 5, Section 118, Transfer of Property Act. 4 Section 118, Transfer of Property Act,CHAPTER 9 MODE OF PAYMENT—SECTIONS 8 TO 10A 9.1 The mode of payment of duty is the subject matter of the next sections with which truroduetory We shall now be concerned. In general, of course, the stamp duty is indicated by “stamy as is obvious from the scheme of the Act and its very little. But certain special situations require special provisions; and to mect those spccial situations, special provisions are enacted in section 8 and the succeeding sections, 9.2. Section 8 is a special provision applicable to bonds, debentures or other securities Section $= issued on loans under the Local Authorities Loans Act, 1879. The provision was originally Reommendation, introduced, it seems, in 1897.1 to give facilities to local authorities for issuing debentures upon ‘payment of composition duty. Section 8 (English), Finance Act, 1899, is in similar terms. The Local Authorities Act, 1879, referted to in the section, has since been replaced by the Local Authorities Loans Act, 1914 ; and the section should, therefore, be amended (o sub- stitute a reference to the lauer Act. We recommend accordingly. We may add that the replies received to our Questionnaire" have favoured such an amendment. 9.3. Section 9 deals with the power of the Government to reduce, remit or compound stamp Sestion |, 9. duties. It is one of the most important sections of the Act, and certainly one of the most power, frequently used sections. Whether duty should be remitted or reduced in @ particutar case, depends on a variety of factors, which are too numerous and fluctuating to permit codifi- ‘cation. That is the principal justification for the section. 9.4, While the conferment of such @ power can harilly be objected to in modern times, it becomes necessary to point out that the power is very wide in its umbit. Under the section, the Government may, by on order published in the Oficial Gazette, grant reduction or remission, Such reduction or remission can be granted (i) prospectively, fr Gi) retrospectively. The reductions and remissions can apply in (i) the whole or (i) any part of the territories undsr the ‘administcation’ of the Goverment. They can apply to the duties With which (2) any instrument, or (i) any particular class of instruments, of (ii) aby of the instruments befonging to such ‘class, or (iv) any instruments when executed by or in favour of aay particular class of persons, or by or in favour of any membcs of such class, are chatge- able. ‘Government can, by similar rule or order, also provide for the composition or consolida- tion of duties in tte case of issues by any incorporated company or other body corporate of debentures, bonds or other marketable securities. ‘The expression “the Government” in the section means,— (a) in relation to stamp duty in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, transier of shares, debentures, proxies and receipts, and in relation to any other stamp duty charge- able under this Aet and falling within entry 96 in List I in the Seventh Sche- ule to the Constitution, the Central Government ; (b) save as aforesaid, the State Government, 94d. As to this expression, it may be noted that before 1937, the Governor General-im- History Council was the only authority empowered to remit ot reduce or compound duty under the section. The Adaptation Order of 1937 substituted the words “the collecting government” for 1, The Indian Stamp Act (1879), Amendment Act, 1897 (3 of 1897) Bee : ag Stamp Act (1979), d ? stity Recommendation to ete fie Section 9A (New.) Recommenda- Section Belegation.— Vali= of, 10. 22 the words “Governor General-in-Council’—and also inserted a definition of “collecting Gov- ernment”. The Adaptation Order ot 1950 substituted the words “the Government” in section 9 and also added sub-section (2), defining the expression “Government”. It also removed the definition of “collecting Government”. 9.4. Reverting 10 the present section, we are of the view that since the power dete- gated by the section in very wide, some sale-guards are needed. In one case decided by the Supreme Couit,! which is very relevant to the point of delegation, the Court, while declaring sections 4 and 7 of the Travancore-Cochin Land Tax Act, 1955 (15 of 1955) to be uncon- stitutional, observed— ~.....-Further, section 7 of the Act quoted above, particularly the latter pact, which vests the Government with the power wholly or partially to exempt any bond trom the provisions of the Act, is clearly discriminatory in its effect ; and, therefore, infringes Article 14 of the Constitution. The Act does not lay down any principle “or policy for the guidance of the exercise of discretion by the Government in respeet of the selection contemplated by section 7.” ‘The Supreme Court in this connection also referred to che Dalm'a case*, and quoted from the judgement in that case. 9.5, While the validity of section 9 has not been contested so far, it appears to us desir- able that in order to preserve its vatidity, some criterion regulating the exercise of the power delegated thereby should be added. We, therefore, recommend the insertion of the criterion of “public interest” in relation to the grant of a reduction or remission by notification under section 9. This could be achieved by adding the words “if satisfied that it is mcccssury im the public interest” after the words “the Government”, in section 9(1). We recognise that this is not a very precise test, but even then, it will give some indication of the legislative policy and lessen the possibility of a successful attack on the validity of section 9(1). We may mention that such an amendment has been supported by most of the replies to our Questionnaire.* Case Taw on the section reveals no conflict of views, obscurities or other difficulties an the ‘working of section 9. Hence no other change is necessary, 9.6. At this stage, we would also like to deal with the question of consolidation of duties in respect of receipts. In the State of Maharashtra,é the following new section has been in- setted, conferring power on the Stale Government to consolidate duties in respect of receipts, “9A. The State Govergment may, by order published in the Official Gazette, provide for consolidation of duties in respect of any receipts or class of receipts given by any person (u~ cluding any Government) subject to such conditions as may be specified in the order” 9.6A. It would, in our opinion, be useful to have a similar provision in the Act Such fa change has been upproved by most of the replies,* to our Questionnaire. We recommend accordingly. 9.7. Section 10 deals with the mode of payment of duty. Duty is ordinarily paid in stamps ; but in exceptional cases, it can be received in cash under certain special provisions ‘of the Act, We have received a suggestion to provide for payment in cash in certain’ other cases. ts genesis is 28 follows : $95 3SCRI, 7 “Runmathae Tavihinni Moopil, Nair Vs. State of Kerala, ALR. 1961 S.C. 85 Emphasis Supoied. Ram Krishna Dalmja V. Justice S.R. Tondabkar, AIR, 1958 S.C. $38, $4849, (Question 26 Maharashtra Act fof 1971. Question 25 oF our Questionnaire83 9.8. A proposal! had originated in the Ministry of Finance to the eflect that there is nsed Payment ofstamp tor an enabling provision in the Stamp Act and the Court Fees Act for permitting levy of the gu 27 Set stamp duty or Court fee in cash, in the event of @ shortage in the aval of non-judicil the gent gt Stamps and court fees stamps respectively. This soggestim wos sent to various Ste Govern OPO ments by the Ministry of Finance for their comments in the matter. The State Governments, of “ea including the Union ‘Tesvitory Administeations, mostly expressed themselves in favour of the amps andcourt suggestion. 9.9. {t may slo be slated in this conneetion that in Gujarat, the Stato Government, some time ago, had prepared a Bill® to amend section 10. It was stated in the Statement of Objects and Reasons that owing to inadequate supply of non-judicial stamps from the Controller of Stamps, Nasik, acute shortage of stamps was felt frequently in different parts of the State. To meet this situation, i¢ had becn found necessary to aurend section 10 of the Act so as to enable the State Government and the Collector to direct payment of stamp duties in cash in such con- ‘ingencies. (‘The Bill does not scem to have become law). 9.10. We have given cateful consideration to the matter, and are of the view that as the Recommendation gumend sexton problem is of frequently recurring nature. it should be solved by adding the following new f sub-sections, to section 10, which we recommend : Section 0(3) and (4)-—(to be added) (3) Notwithstanding anything contained in sub-section (1), where— (i) the State Government, in relation to any area in the State, or Gi) the Collector, in relation to any area in the district under his charge, {s satisfied that on account of temporary shortage of stamps in any arca, duyy cannot be paid, ‘and payment of duty cannot be indicated on instruments, by means of stamps. the State Gov- ‘ernment, or, a3 the case may be, the Collector, may, hy Notification in the Official Gazette, direct that, in such area, the duty may be paid in cash in any Government: treasury or suh- treasury, and certify by endorsement on the instrument in respect of which the «tary duty is paid, that the duty has been paid, and state in the sald endorsement the amouss of the duty so paid (4) An ndorsemest made on any instrument under sub-section (3) shall have the same effect as if the duty of an amount equal to the amount stated in the endorsement had been paid in respect of, and such payment had been indicated om such instrument by means of stamps, under sub-section (1). 9.11, This disposes of section 10. At this stage, we may discuss « new point concerning Seetion 104 the mode of payment, At present, the usual mode of payment of duty on docwcn ate Se ing stamps." Tn our view, an innovation worth considering is the use of franking machines, [t_machies is well-known that such machines are allowed for postal stamps.* Tt appears’ that the laws in Malaya and Singapore provide for issuing licences, authorise ing persons to pay the required duty on cheques, bills of exchange (not including promissory notes) and receipts, by postal franking machines. Apart from that, however, the utility of such a provision is obvious. 9.12. Practical experience of a similar provision in the Post Oifice Act shows that such somes 2 provision vould not lead to serious evasion. The provision in the Post Office Act as to Postal {© te, dened franking (Section 17, Post Office Act), is quoted below :* Pate, 1, SIN. 132 in Law Commision File Extract from File No. 471/61/71-Cus-VIL, Min. of Finance (Revenue & ‘Insurance Department) 2. SN 132 in law Commission file 53. Sections 10 and 11, Stamp Act 4, Section 17, Indian Post Office Act, 1898, S. Shecidan, “Malaya and Sigapore ~The’ Development of Lavss and Canstitution” (1961) Page 232. 6, Section 17, Post Ofice Act.45 of 1860) 45 of 1860, Recommendation 84 “17, (1) Postage Stamps provided under section 16 shall be deemed to be stamps issued by Government for the purpose of reveaue within the meaning of the Indian Penal Code, and, subject to the other provisions of this Act, shall be used for the payment of postage or other sums chargeable under this Act ia respect of postal articles, except where the Central Govern- ment directs thet pre-payment shalt be made in some other way. (2) Where the Central Government has directed that prepayment of postage or other sums chargeable under this Act in respect of postal articles may be made by prepaying the value denoted by che impressions of stamping machines issued under its authority, the impres~ sion of any such machine shall likewise be deemed to be a stamp issued by Government for the purpose of revenue, within the meaning of the Indian Penal Code.” 9.13. We recommend that some such provision should be inserted in the Stamp Act. Some of the replies (0 our Questionnaire favour it. Some have raised queries about the likeli- hood of misuse. We have dealt with that aspect already. The new section could be numbered as section 10A. i Questions 27.CHAPTER 10 STAMPS AND THE MODE OF USING THEM: SECTIONS 11—16 10.1. The instrumenis which “may be stamped” with adhesive stamps are enumerated in Sein Ml. section 11. These are— “{a) instruments chargcable with a duty not exceeding ten naya paise, except parts of bills of exchange payable otherwise than on demand and drawn in sets; “(b) bill of exchange drawn or made out of India, and promissory notes so drawn (c) entry as an advocate, vakil or attorney on the roll of a High Court ; (4) notarial acts ; and (e) tansfers by endorsement of shares in any incorporated company or other body corporate. 102. We begin with opening fine of the section, which says—‘the following instruments Section 1) may be stamped with adhesive stamps”. It has been held that the use of adhesive stamps under the word“may”™ this section is permissive and not obligatory, so that if an impressed stamp is available and suitable, it can be used instead of an adhesive stamp. In our opinion, it is desirable that this interpretation should be codified, so that the section is made selfcontained. This could be ‘chieved by inserting an Explanation to the above effect, 10.3. In clause (a), the amount ten naya paise should now be increased to twenty (see Section 11(a) and Article 53). As to clause (b}, it has been held? that the words “drawn or made out of India” govern the entire clause and are not confined to promissory notes. This is not, at first sight, apparent from the section, and it would, therefore, be useful to re-frame clause (b) 2s follows, 50 as f0 bring out its true scope “(b) bills of exchange drawn or made out of India, and promissory notes so drawn or made!” 104. Section 11(c) provides that entry as an advocate vakil or attorney on the roll of a SS ML, High Court may be stamped with an adhesive stamp. We are going to recommend deletion He ‘of the charging article on such instruments. We, therefore, recommend that section 11(c) should be deleted. ‘The remaining clauses need no change. : . ry 104A. In the light of the above discussion, our recommendaton is to revise section 11 as under : “11. The following instruments may be stamped with adhesive stamps, namely— (@) instruments chargeable with a duly not exceeding twenty paise, except parts of bills of exchange payable otherwise than on demand end drawn in sets ; (b) bills of exchange drawn or made out of India, and promissory notes so drawn or made ; (6) is omitted. (@) notarial acts ; and (©) transfers by endorsements of shares corporate.” 1. (a) Kalyan Singh v. Bhawar Singh VLR. (1965) 1S Raj. 231. () Som Dutt v» Abel Rashid, ALR. 1868 Raj 45. 2. Dena v. Romohrisinieh, (1880) LLR. 2 Madras 173, 174 ase on section 10(0), 1879 Act. 3. Article 30, Inia any incorporated company or other body 85 2AM of Lavej77—12‘Section 12, Principe. Section 1203). abe of cance 86 Expianarion—To be added 9s recommended. 10.5. Section 12 deals with the important topic of caucellation of adhesive stamps. Under vvib-section (1), clause (a), whoever aflixes any adhesive stamp to any instrument chargeable with duty which has been executed by any person shall, when affixing such stamp, “cancel the same so that i cannot be used again 2” Clause (b) of the sub-section enacts that whoever executes any instrument on any paper bearing an adhesive stamp shall, at the time of execution, unless such stamp has been already cancelled in the manner aforesaid, cancel the same so that it cannot be used again. “Under sub-section (2), any instrument bearing an adhesive stamp which has not been cancelled so that it eannot be used again, shall, so far as such stamp is concerned, be deemed © be unstamped. The mode of cancellation is indicated in greater detail by sub-section (3). It provides that the person required by sub-section (1) to cancel an adhesive stamp may cancel it by writing ‘on of across the stamp his name or initials or the name or initials of his firm with the true Gate of his so writing, “or in any other effectual manner”. 10.6. The principle underlying the section is fairly clear. As was observed in a Bombay ease “The Stamp Act of 1899. (clause 3 of section 12) points out as a guide how the cancelia- tion may be effected... the Jaw being that a used stamp cannot be used again—the object of the legislature in making cancellation obligatory is that the used stamp should bear on it some effective mark to show that it has been used.” ‘The principle was further explained in a Lahore caso? in these words = “The principle underlying section 12 is that the possibility of a stamp affixed to an instra- nent being used again should te precluded.” 10.7. The application of sub-section (3), however, is not totally free from difficulty. Tho frst part of the sub-section (3) indicates one mode of cancellation as sufficient, namely, the writing ‘on the stamp of the executant’s name or initial and the true date. But the sub-section dos not tay down? any special manner which must be rigidly followed in every case. 10.8. Where the cancellation is by inscrfbing on the stamp the executant’s name or initial , and true date, as proviced in the section, there is no difficulty. eae ‘As to the other methods of cancellation of stamp, indicated in sub-section (3) by. the words “or in any other effectoal manner”, the question often arises whether the method » em- ployed is sufficient to prevent the stamp from being used again. Thus, the Allahabad High Court has held! that the degree of cancellation required is not such a8 to make it absolutely impossible for a fraud to be committed ; and, it hag, accord- ingly, held that the stamp was effectually cancelled when 2 single horizontal fine was drawn across it, od ‘Similarly, where signature without date was written across, it was held as effactive® can- cellation, In’ another case®, the signature of the executant made by the scribe oa the adhesive Stamp under direction of the illiterate executor, was regarded as effective cancellatign. Draw- ing lines in different directions and extended on the paper, were held to be an effettive can- cellation in an Allahabad case.? i TT. Pabhaadeapa bin Adharshepa v. ‘Brine Bell Sera (900 6 Bom. LR 46 jTCR 28 Bam. 432 ‘Chandovarhar& Aston J). 2 Soham Lat Nihal Chord!» Raghonath Singh, ALR. 1934 Lah 606, €07 (Shadi Lal CJ. & Rani Lal J, 3 GA. Hever ¥. Sultan Khan, ALR. 1936 Oudh 176 (Srivastava and Nanavusty 32) 1. Maladao Kort v. Sheor} Rom Tet, (1919) ULAR. 41 All 169. 180, 181, 182 (Piggott and Waleh, 15) 5. Kinpa Ram v. Bars Bal, 3 All 1-J. 326 & Thakari Mallahv, Rami Tahal Tewor! , ALR. 1931 All. S7(1) (Niamutulla 2) 7. Mohomuraad Amir Mirza Beg v. Baba Keder Noth, 5 1.C. 202A.)87 10.9. In this context, parallel lines create problems. The Bombay High Court, in as ear- Pam Uoes lier case!, held that two parallel fines drawn actoss a stamp means no effective cancellation in another Bombay case’, a small part of the first letter of the executant's signature, consist- ing of a slightly curved line, appeared on a stamp, and this was held not ¢o effect such a can- cellation of the stamp ar was provided by section 11, of the Stamp Act, 1879. But the earl view has been criticised in a later Bombay case.’ ‘The Lahore High Court has held that drawing diagonal lines across the face of the adhe- sive stamp was effective cancellation." In another Lahore case," drawing a line across the stamp ‘was treated as effectual cancellation, since the intention to cancel was clear from what had been done. But, drawing a line across the stamp in a manner which leaves the stamp capable of being used # second time* was not regarded as an effective cancellation ‘The Oudh view was that signatures of the exeeutant, if run across the whole stamp, was effective’ cancellation. But if there are several adhesive stamps which make up the required stamp, all such stamps should te cancelled, and on failure to do so, the instrument should be deemed® unstamped under section 12(2), a8 regards the uneancelled stamps. According to the Andhra Pradesh High Court,’ the drawing of two Iong perallel lines is ‘tufficient to effectively cancel three stamps. These decisions reveal a good deal of controversy 10.10. Under the English Stamp Act, 1891 (54 and $5 Vict. ¢. 39), section 8 of which Entgish La is in similar terms," it has beer held that the writing of the name or che date alone or otker marks such as lines or ctoss-mark on the stamp, is sufficient cancellation." 10.11. Though cancellation is a question of fact, it appears to be desirable to make some ‘spocific provision in the section about a particular mode of it—cancellation by drawing a line across the stamp, so as to avoid such controversies as have teen referred to above.’? We, therefore, recommend that in section 12(3), before the words “or in any other effect: tual manner”, the words “or by drawing x line across the stamp or”, should be added, for this We may state that the suggvsted amendment has been generally favoured by the replies teodived to our Questionnaire.) 10.12. So far we were concerned with adhesive stamps. As to impressed stamps, section 18 provides thar every instrument written upon paper stamped with an impressed stamp shall suet. tbe, written in such manner that the stamp may appear on the face of the instrument and can staripod ‘not be used for or applied to eny other instrument. The principal object of the section is to joaNs™sae Protect the revenue, and to avoid the frauds which may be facilitated if the instrument is tea, written in such manner that the stump can be used fot purposes Of another instrument when $0 desired. This general rule is sound enough, But, in applying what is enacted in the section, ‘certain problems have arisen in parctice. 1. Firabadha Din Advoshapa v. Bhinolé Balaji Saraff, (190A) LER. 28 Bom. 432. 2 Bee In re Teta Iron & Sice! Co, (1926) A.LR. 1928 Bom. 80; 20 Bom. LR. 197, 216 Crimp 1) 3, See alto Puan Dita (1908) 108 PIR. 1908, 4. Mela Ram, Br Lal, ALR. 1920 Lah. 374 (Broadway 1), following Motia Ami, (1912) 15 1.202. S. Kishort Lal Banarsi Das v. Ram Lal Tek Chand, ALR. 1921 Lab, 120 (D.B,) 6 Hafiz Allah Boksh v. Dost Mokammad, ALR. 1938 Lah, 716, Addison . and Sale J. LGA. Heven v. Sulcan Khan, ALR. 1936 Oudh 176 (Srivastava and Nanavatty 33.) ‘8 Babu Lal. Durga Prasad, ALR. 1940 Ovdh 308 (Radhakrisna 3.) 3.) Mu Sinderonan Veta, ATR. 1963 And Pradesh 442, $44, 445, Paras 19 and 18, (Anauérayaa ‘aver, J) () Nerajan v. Savojnt Dest, ALR. 1963 A.B. 378, 378, para 4 (Narasimhan, J) 10, Section 8, Stamp Act, 1891 (Bog). M1, M. Mellen v. Alfred Hickman Steamship Lid (1902) 17 1.3. Ch. 16, 461. $2 Para 10.9, Supra. 13, Question 28—section 12,Writing on the Rule 7. Us of Phin papers. 88 10.13. The first question that has arisen relates to the point whether the reverse of the stamp paper could be used. The scction itself does not say that only one side may be written upon ; and the Bombay High Court! has held that the reverse of the stamp paper can also be used. In the Bombay case, the document commenced on the reverse of the side on which the stamp ‘was impressed, and terminated on the side impressed with the stamp. It was observed that the stamp was not, in any way, defaced, nor was the paper so written as to admit of the stamp being used again. On these facts, the High Court held the document was properly stamped. ‘A Goverament notification prohibiting writing on the reverse of an impressed stamp paper was noted, but it had been issued after the bond in question, and it was not, therefore, material. ‘This prohibition (imposed by the notification) referred to above, was withdrawn in 1881, but in 1882 a rule was made which provided that when a single sheet is found insufficient to admit of the entire instrument being written on the side of the paper Which bears the stamp, so much plain paper may be sub-joined as may be necessary for the complete writing of the insteument, pro- vided that in every such case the side which bears the stamp must be covered by a substantial part of this instrument before any part of the instrument can be written on the plain paper joined to such sheet, With reference to this rule also, the Madras High Court held,* that it was an enabl- ing rule, authorising the use of plain paper; but, it did not prohibit writing on the reverse side. 10.14, One would think that since the controversy as to writing on the reverse of the paper had arisen more than once, the rule on the subject would have been revised to make the ‘position more liberal. However, when the rules were revised in 1925, no such clarification was made, and the rule now in force* is silent on the subject of writing on the reverse. Indirectly rule 7(2) disallows it. We are of the view that it is desirable to make the section specific on the subject, and to allow writing on the reverse by an express provision. 10.15. The following rule of the Stamp Rules, to which we have already made a reference, raises a few other questions. 7, Provision where single sheet of paper is insuficient.—(1) Where two ot more sheets of paper on which stamps are engraved or embossed are used to make up the amount of duty chargeable in respect of any instrument, a portion of such instrument shall be written on each sheet so used. (2) Where a single sheet of paper, not being paper bearing an impressed hundi-stamp, 4s insufficient to admit of the entire instrument being written on the side of the paper which bears the stamp, so mach plain paper may be subjoined thereto as may be necessary for the com- plete writing of such instrument. “Provided that in every such case 2 substantial part of the instrument shall be writ- ten on the sheet which bears the stamp before any part is written on the plain paper subjoined.” 10.16. We have already referred to the question of writing on the reverse of the stamp paper. Then, there is another matter which requires attention. Section 13 itself does not give ‘any guidanco as to the use of plain paper, but the rule provides thet where the single sheet is insufficient, plain paper may be subjoined, but in every such case a substantial part of the instrument shall be written on the sheet which bears the stamp before any part is written on the plain paper subjoined. It may be noted that rule 5(e) of the Rules made under the Stamp Act of 1879 contained a further proviso, namely, “that the part of the instrument written on the plain paper must be attested by the signatures or marks of all persons executing the docu- meat and witnesses to the same.” This part of the rule was, however, held to. be slitra vires, 1. Dowlat Ram. Vitho Radha, (1879) TLR. $ Bom. 188, 195,197. 21 At that time, section 12 of the Stamp Act of 1979, was the relevant provision, 3, Reference regarding, Stamp Act, (1680) LLR. 7 Mad, 176 Full Bench). 4. Rule 7, Incian Stamp Rules, 1925 (nf) 5. Para JO1S, Sapa. Se, Role 70}, Indian Stamp Rules 1925 (Supra)39 ‘as going beyond the pasent Act! as it imposed a more stringent requirement than the Act, and, ultimately, it was sescinded by notification in 1891 Here again, it appears to be desirable to provide specifically that it is not necessary that the plain paper should be signed by the parties. This will make the position explicit on the subject. 10.17. We now come to the situation of use of more than one stamp papers. The section 45, again, silent a$ to this, but the matter ig dealt with by the same rufe, that is to say, re 7 of the Indian Stamp Rales.? In substance, the rule provides that a part of the instrument must be writen on each sheet so used, the idea being that the stamp paper should not be used for writing any other instrument. An instrument offending against the rule would not be duly stamped. Now, this may be a good rule in general, but, in practice, some difficulties arise because ‘one single stamped sheet denoting the entire duty is often not available, so that, although the text of the instrument is a short onc, it has to be spread out over a number of stamp papers in order to comply with the section, «stead with the rule, The requirement that the instrument must appear on eacit of rhe attached stamp papers, if taken literally, is not convenient, in the cease to which we have referred above. 10.18. No doubt, the public hes found a way out by adopting the practice of macing a suitable endorsement ‘on the atfached paper, but the attached paper does not contain any “substantial matter” relating 10 the transaction and, therefore, its validity is in doubt. In general, in the case of instruments stamped with impressed stamps, the number of stampe which may be used can be regulated by rule.’ But it appears to be desirable to provide that the text need not appear on cach stamped sheet, and that an endorsement stating that the stamped paper is attached to another stamped paper containing the text, will do. 10.19. it would be convenient if the section is made self-contained, as far as possible, on the points discussed above, so that the cifizen may clearly know from the Act the position in this respect. It is for this reason that we recommend an amendment of the section, to be Presently mentioned. We may state that principle of suggested scheme has been favoured by many of the replies received to our Questionnaire.« 10.20. Our recommendation in the light of what we have stated above is that section 13 should be revised as follows :— “13. Every instrument written upom paper stamped with an impressed stamp shal bbe written in such manner that the stamp may appear on the face or reverse of the instrument and cannot be used for or applied to any other instrument. Explanation 1.—Where iwo or more sheets of paper stamped with impressed stamps are used tw make 1p the amount of duty chargeable in respect of any instrument, either a portion of suck instrument shall be written on each sheet so used, oF the sheet on which no such portion is written shall be signed by the execuiant for one of the executants, with an endorsement indicating thar the sheet is attached t0 another sheet on which the instrament is written. Explanation 2.—Where a single sheet of paper, not being paper bearing an impressed hundi-starep, is insufficient 10 admit of the entire instrument being written on the stamped paper, sg much plain paper may be sub-joined thereto as may be necessary jor compléting the writing of such instrument, provided a substantial art of the instrument is written on the sheet which bears the stamp before any part is written on the plain poper sub-joined, but the fact that the plain paper 1s rot signed by the executants shall not render the instrument not duly stamped.”. 1. Reference on the Stamp Act, (1884) I 2 Para 10.15 supra, 3. Seetion 1002K6), 4. Q Besection 13, More than one stamp paper. Need for Change Recommendation te revise section BIntroductory Seotioa 14 and Section ew) 90 10.21, It is a general rule that only one instrament can be written on the same stamp 482 paper. Section 14 expresses the rule thus :— “14, No second instrument chargeable with duty shall be written upon a picce of stamped paper upox which an instrument chargeable with duty has already beeu written : Provided that nothing in this section shall prevent any endorsement! which is duly stamped or is not chargeable with duty being made upon any instrument for the purpose of transferring any right created or evidenced thereby, or of acknow= edging the receipt? of any money or goods the payment or delivery of which is scoured thereby”. ‘The main paragraph of the section raises no difficulty. It does not apply unless both the frst and the second instrument o1e chargeable with duty. But the proviso to the section appears 10 deal with only one situation, while there arc also other situations that require consideration. Effeet_ of altera- 10.22. In this connection, it may be pointed out that on the general question whether fon, in an instra- ; ; ae on faan sine ay iteration in an insirument already written affects the stamp, the section is silent. or On a study of the decided cases, both Indian® and English', it would appear that the principle is that where, by reason of an alteration made in an instrument, the instrument Becomes a new one, a fresh stamp is required. The words “second instrament” have been so construed. ‘The reason is that the original stamp is spert.* The principle applicable is of a simple nature, though there may be cificulty ia the application, Boston in 10.23, fn England, it is well established that no further stamp is required if the alteration, Pemba a (a) immaterial, of (b) merely doclaratory,? ot (©) intended to render certain a point which was Ieft open,* oF (@) made to correct a mistake? or (e) made by 2 stranger 3° Dut, in the case of a Bil of exchange! executed in the country, the party suing on the bill snust prove that the alteration does not vitiate the stamp."* It has become necessary 10 discuss these points because the proviso to the section gives no guidance in the matter. Consent of js : Sormot of so04, Kor the present purpose, a material alteration may be described a5 one which = 290BO anne the legal cfect of tho instrument, A material aeration made without the consent of 1. See article 62, as (o endorsement. 2, See arlcle 53, as to acknowledging rectpt. fq) Reference under Stamp Act, (1888) LR, 11 Mad. 40. ‘oy Cox & Co. v. Restonii, ALR. 1927 Bom, 1315. {0 Peston & Co. ¥. Cox & Co. ALR. 1928 PC. 231. 4, For English entes, se para 10,23, Inf. $ (a) Bowman v. Niciol, (1794) 5 Term Reports $27. \(b) Lonion ond Brighton Railway Co. ¥. Frclough, 6: Heatley ¥. Manson, (342) 4 Man & G-¥72 F. Doo Waters. Houghton (1827) 1 Man & Rr. KB. 208. & Sadgrove V Brpden, 1907) 1 Ch. 318. 9. Cole v. Parking, (1810) 12 East, 47. 10. Monjree v, Brome, (1805) 6 Est 309 AL, Kright 7. Clements (1838)8 Ad & EL 215 12, Halbory, 3rd. Ed, Vol, 3, Page 283, para $02; and Vol. 3, aus 253 cage 2M & C67.1 the parties may, of course, render the instrument void under the Jaw of contract. The principle? is that “no man shall be permitted to take the chance of committing a fraud without running any risk of losing by the cvent when the fraud is detected.” The Negotiable Instru- ments Act®* has a specific provision on the subject. ‘The Inw on the subject has been fully discussed by the Supreme Court. Considerable discussion has also taken place as to the effect of alteration by accident. jn the general law, But we are not concerned with the effect of alterations in general lav. 10.25. Having regard (o the obscurity on the subject, in the Stamp Act, it is desicable that practical iti the position in this respect should be stated ia the proviso. The matter is not of mere academic culty. importance, because, in the case of a contract, the result of a rule requiring fresh stamp for ‘a new agreement is that the old agreement cannot be sued upon as it has been superseded,” and the new agreement is inadmissible if not stamped afresh. Thus, a practical difficulty. can arise, 10.26. In view of the importance of the principles mentioned above, and the practical Recommendation difficalty likely to be caused as indicated above, it is desirable to make the law self-contained, {4 AS*t S10" by adding a provision to ensure that immaterial alterations, as enumerated above,’ do not bear duty but material alterations bear duty a fresh. We my state that the suggested amendment has been generally favoured by the replies received to our Questionnaire.® We recommend that the provision be inserted as section 14A. The following is » rough draft -— “14A, Whese there are material alterations made in an instrument by a party with cor withow. the conseat of other parties, the instrument shall require a fresh stamp according to its altered character. 10.27. Section 15 provides that every instrument written in contravention of section 13 section 45 or'soction 14 shall be deemed to be unstamped. It may be recalled that section 13 deals : with the manaer in which the instrument stamped with an impressed stamp shall be written, and section 14 provides that only one instrument should be written on the same stamp. ‘The effect of section 15, as read with section 13, was illustrated in a Lahore case,” where a security bond taken on an ctder for stay of execution, was written on plain paper ‘bearing @ court-fee stamp of 7 annas, instead of on impressed stamped paper, thus. contra- vening section 13. The bond was held not to be properly stamped in view of section 15. As to the effect of section 15, read with section 14, a few reported cases will be referred to in due course.t® 30.28. There is no controversy about the substance of setcion 15 ; but, the wording appears Verbal to be capable of improvement. ‘The use of the expression “deemed to be unsamped” raises ant Renea™ a doubt a5 to whether an instrument governed by the section—that is to say, wntten in violation of sections 13-14—can be admitted in evidence on payment of penalty under section 35 ot validated by endorsement of the Collector under section 41. 1. Maser v. Mier, (791) 4 Term Reports 29, 29, 4S ER. 855 Lord Kenyon, C3.) 2 Seaton 7, NegoiableInstumnents Act, 181, 2, Agta this aspen, co Haury, 3rd Tn, Vol. 1, page 367s as to mate alternations in is ‘Halsbury, 3rd’ Edn., Vol. 3, Page 233. at : Serer a eee 4, Ansbach ¥. Thorns Co,, ALR. 1963 S.C. 746 5. Haron ond Shot Biking Cor, vol Shi. (938, AC. 18, For comments, ee (1928) LQR. 4 ase 6 Revel Exchange Assurance v. Hope, (1928) Chancery 179 (Court of AnpeaD. 7. See “Sonmateriat alterations”, supra. 8. Q 30—section 14. Guranaiia Mel v. Firms Gicandittamal Ram Chand, ALR. 1925 Lab. $82, 5$4 (Mastinegy, J.) 10, See “Case of two instruments", ina92 In one of the carly Bombay cases,' it was held that the Collector ought to refuse to make an endorsement in such cases. But this view was over-ruled in a later decision? A Madras case agrees? with the later Bombay view. 10.29. It is, in our opinion, desirable to avoid the recurrence of such controversies, and foo"fubuitite this could be achieved by sulstiuting the words “not duly stamped" for the word “unstamped”, ay yore in scetion 15. ‘The expression “duly stamped” js defined in the Act, and is used at many places in the Act. We recommend that the section should be amended as above. It is in harmony, for cxample, with the language used in the section dealing with the Collector's power to stamp instruments which arc impounded" This clarification can usefully cover section 144 (new) also, Cue of 6 10.40 We shall now deal with another question arising out of section 15, It is to be instruments. poted that where two instruments are written on one paper, it is the second instrument which fs to be treated as ‘unsiamped” within the meaning of section 15, and not the first one. Thus, in x Madras case," a decd of release was endorsed on a deed of conveyance for Rs. 100. ‘The conveyance bore an impressed stamp for one rupee, but the endorsement of release was lunstamped. Tt was held that the conveyance was valid, and the release could be validated on payment of the deficient stamp duty and the penalty under section 39 of the old Act I of 1879 (section 40 of the present Act). 10.31. A similar view (regarding the admission of @ document in evidence on payment ‘of deficien, siamp and penalty), was taken in another Bombay case,’ where an endorsement ‘of transfer written on a duiy stamped simple money bond, was in issue. The question to bbe considered was whether the case fell under that part vf section 14 (old section 13) which forbids a second instrament being written upon papet on which an instrument has already been written, [twas held, that the endorsement was chargeable with duty, but could be stamped under old section 34-—present section 35. Recommendation 10.2. Tn our opinion, it is desirable to codify the proposition emerging from the above to make it Skat cases, in so far as they hold that it is the second instrument which is to be deemed to be fnsuumest it not duly stamped. The clarification will be confined to instruments falling under existing see Comoe tion 14 and will not cxtend to new section 14-A. We may state that the suggested amendments have been generally favoured by the replies received to our Ouestionnaire.* Recommendation ‘10.33, Accordingly, we recommend that section 15 should be revised as under :— Kevised section 15 “15, Every instrument written in contravention of section 13 or section 14 or section 14A shall b> deemed to be unstamped”” Explanation.—tn the case to which section 14 applies, #t shall be the second Imstru- ‘ent which shall be deemed to be unstamped. Section 16 10.34. Section 16 is as follows :-— “16. Where the duty with which an instrument is chargeable, or its exemption from uty, depends in aay manner upon the duty actually paid in respect of another Denoting duty. 1 In the matter of Hammappa, (1888) TLR. 13 Bom. 281 2, Prahlad v. Vth, L1-R. (1892) 17 Bom. 687 (EB) 13. In the matter of Reference et, (1888) LLR. 11 Mad. 40, 4, See section 211, “duly stampes.” 5, Section 40 (1) @) and (). i he mater of reference by Collector of Stamp, Madras. (888, LLLR: 11 Mad. 4; (Co Hos, C3, Reraan, M 4 Oe i ee eee See Nek unser Od. rion 1a, corespoading 19 eset seo i 1 Pahad Laiseaneos Nine. Vio, (1895)7.LR. 17 Bor, 67 (aoa, Tang and Candy, 31) 8, (a) Q31—teoton 5. {@) Q32-section 15 and second instrument.93 instrument, the payment of such Iast-mentioned duty shall, if application is made in writing to the Collector for that purpose, aod on production of both the instruntents, be denoted upon such first-mentioned instrument, by eadorse- ment under the hand of the Collector or in such other manner (if any) us the state Government may by rule prescribe.” Sometimes, the duty payable on some instruments depends upon the duty paid on other instruments that have already been executed and stamped. Examples of such instruments are— subsidiary instruments, as opposed to the principal ones under section 4, the counter-patts or duplicates of instruments under Article 25, leases under the proviso to Article 35, instruments of partition under proviso (a) or (c) to Article 45, and instruments of settlement under the proviso to Article 58, Similarly, at times, the exemption from duty in favour of some instruments, (for example, the entty of an advocate or attorney on the roll of a High Court when he tres previously been enrolled in a High Court) depends on the duty paid on another instrument 40.35. In order to render these instruments as either partially stamped or totally exempt from stamp duty, because of the principal documents having been fully stamped, section 16 lays down that on production of both the instruments and on an application to the Collector, an endorsement would be made by the Collector on the Subsidiary instruments, denoting the Payment of the duty actually paid in respect of the principal instrument. 10.36. The necessary endorsement will be made by the Collector, only if an application has been made in writing to him, for the purpose. If the party interested does not apply for the necessary endorsement and, therefore, does not obtain it, then he has to produce, When required, both the instruments, in order to rendet the partially stamped or exempted instrument admissible in evidence. No change is needed in this section. 1 Compare section 11, Stamp Act, 1891 (Eng) AM of Law/77—13.Section 17, CHAPTER 11 TIME OF PAYMENT—SECTIONS 17—19 ILL. The time of payment of duty is dealt with in sections 17 to 19 of the Act. Briefly speaking, the time of stamping is linked up with the time of exccution, but special situations, such as an instrument executed out of India, may arise and have to be dealt with. The general proposition is 10 be found in section 17, All instruments chargeable with duty and executed by any person in Indsa shal! be stamped before or at the time of execution under the section. ‘The expression “shell be stamped” means that the instrument should be duly stamped, that is to say, 2 stamp of the proper description and amount should have been used at the time and in the manner preseribed by law. “Executed”, as defined in the Act, means signed? So, stamping must precede of be simultaneous with signing. 11.2. There has been a conflict of views with respect to the phrase “at the time of execution” in section 17. In a Bombay case, a promissory note was executed by A and B, 12 stamp was affixed afterwards and cancelled by A, by again signing it. The High Court held that the stamping mus: be held to have taken place subseqient to the execuiion, and therefore, it could not be said that the promissory note was stamped “before or at the time of execution”, within the meaning of section 17. In that case, the evidence clearly showed that defendant 1 wrote out the promissory nove in suit, and defendants t and 2 put their signatures on it in the presence of the plaintiff's hus- ‘band. "Ir was then stamped, ‘This, sccording to the Bombay High Court, was a clearly evidence fo establish that the stamping of the promissory note took place after the execution was already complete, According to that High Court, section 17 requires that the stamping should be done sometime before the document is executed, or that a stamped paper must be placed before the executant who must execute it, or, he must first stamp it and then execute the document, But, if the executant has already finished the “execution” of the document (in the eye of the law) thea any subsequent stamping, /wever close in time, could not be said to be stamping a the time of execution. The High Coury criticised an earlier decision of the Madras High Court', holding to the contrary. In the Madras case, there was only one executant, and the promissory note was signed by him, and subsequently, it was stamped, ‘The Madras High Court held, that the ‘uncontradicted evidence of the pisintifi showed that the acts were “practically simultaneous”, and the stamping was, therefore, done “at the time of execution” within the meaning of section 16 gf the Siamp Act, 1879, corresponding to section 17 of the present Act. The Madras High Court, further, expressed the view that, even under the present Act, where execation is defined 2s meaning “signature”,* it would not make any difference if the stamp was affixed ‘and cancelled immediately after the signature on the docament, the signing and stamping being continuous acts in the same transcetion, The Bombay High Court, however, observed that, it was difficult to understand the significance of the expression “practically simultaneous”. Either the stamping is after execution, or before or at the time of the execution. 1, @) Moti Lal v. Jogmohandas, (1908) 6 Bom. LR. 689. (6) Jethbalv. Rama Chnadeo. (1899) LER. 13 Bom, 484.7 2, Section 2(12), nian Stamp Aci, 1899. 2 Me Ri Conan Var Al. Benes, ALR. 1956 Bom. I, 423, pan DB) (Chasis, Cit and Dini, 4. Sur Mad v, Hudson, (1900) LLR. 24 Mad. 259. 261 (DB) '. Section 22), Stamp Act, 1999. 9495 11.3. In @ Kerala case,! the Bombay view? was dissented from, and the Madras view was followed. In that case, promissory note was affixed with additional stamps after the second attesting witness pointed ow! that the note was insufficiently stamped. ‘The High Court hheld that the execution of the promissory note was complete when additional stamps were aftixed and defaced and delivery of the promissory note was effected. According to the Kerala High Court, the expression, “shall be stamped at the time of execution” must be interpreted in a reasonable manner, and it is sufficient it signing and affixing of the stamp are “practically simultaneous”, 11.4. From the above discussion, it appears that the existing phrase, “before or at the time of execution” in section 17, lands the courts in difficulty, Tt would, in our view, be better if the words “at the time of execution or immediately thereafier” are substituted, im place of that phrasc, and we recommend accordingly. We may tote that such an amendment has been generally favoured in the replies to the Questionnaire issued by us.t to amends. 11.5. Instruments enecuied outside India are dealt with in sections 18 and 19, Under Section. 18. section 18(1), every instrument chargeable with duty executed only out of India and not being @ Dill of exchange or promissory note, may be stamped within three months after it has been first recsived in India Under section 18(2), where any such instrument cannot, with reference to the description of a stamp preseribed therefor, be duly stamped by a private person, it may be taken within the said period of three months to the Collector, who shail stamp the same in such manner as the State Governmen: may, by rule, prescribe, with a stamp of such value as the person so taking such instrument may require and pay for. ‘Thus, the instruments which are exccuted out of India and charueable with duty,® (not being bills of exchange or promissory notes) may be stamped within three months after they have been first received in India, If stamps of the required description are not available, the party should take the instrument to be stamped within the said period of three months to the Collector who will starap tke same with the stamp of proper description. It is, however, necessary to make an application to the Collector in this regard. 11.6. Section 18 must be read with section 3(c). Section 3(c) makes it clear, that instrument's executed out of India (other than bills of exchange or promissory notes) will not be Liable to stamp duty unless they relate to property situate or to any matter or thing done or to be done in India and are received in India, Thus, a simple money boad executed out of India will not be Table to duty even when received in India, because it does not relate to any property situate, or to any matter or thing done or to be done, in India. If, however, the iastru- ment in question related to some property situate in India, it would be governed? by section 18. Deeds of partition, executed abroad, of property partly situate in India are also so governed as would appear from the decision in 2 Madras case® ‘The same is the case with acknowledgements of debts.? 11.7. If the instrument in question is not stamped within the prescribed period of three ‘months as under section 18, but is stamped afterwards, it would be deemed to be unstamped, and would be governed by section 35 as regards the consequences of non-stamping. For example, instruments chargeable with the duty of one anna (now 10 paise) ¢g—an acknow- Jedgement of a debt;--if not stamped within the period of three months of their receipt in India, cannot be admitted in evidence even on the payment of duty and penalty, because section 35 does not provide for the admissibility on payment of duty and penalty.!® 1. Karbala Markove v. Varkey Varkey, AER. 1566 Ker, 315 (Ts G. Raghwvan). 2 Mra. Rohini Chonirakontav. A. Fernandes, ALR. 1956 Bom. 421 (pata 1, sua.) 13. Suit Mall v Hadson, $930) ULAR. 24. Mad. 259, (.B), para 11.2, pra 40.38 3 eben Poni dtr, ALR. 1923, Patan 14 © Sexton 3. 7. Herbert Frais v. Mok. Akbar ALR 1928 Patan 134. 8 Rolangam v, Rojeneurgamer, ALR. 1920 Mad. 149. (Document execute at Trivandrum). 9. Ali Mohamed v. agarmath, Al.R, 1928 All. 666, 10 Ali Moiamed. Jagan nati AR. 1928 All 666, day. # & i 8 ii No. change 96 118. Again, section 18 does not make the copy of a document admissible by stamping it with the stamp required on its original. If the original instrument executed outside India requifes to be stamped when brought in India, and is not stamped, then a copy of that instra- ‘ment brought in India must be rejected as inadmissible, and cannot be placed on record, a8 the law now stands, for the reason that it cannot be stamped and no penalty can be realised on it under section 35. Section 18 applies only to original documents which, although executed ‘out of India, attract duty in India and are brought in India! 31.9. The above brief discussion would serve to illustrate the implications of the section. ‘There being no conflict of decisions or obscurity in language or other difficulty in the working of the section, we have no further comments on it, 11.10. Under section 19, the Grst holder in India of any bill of exchange, (payable otber- wise than on demand) or promissory note drawn or made out of India shall, before he presents the same for acceptance or payment, or endorses, transfers or otherwise negotiates the same in India, affix thereto the proper stamp and cancel the same. ‘There are two provisos to the section, Which read as follows :— “(a) if, at the time any such Bill of exchange, or note comes into the hands ot any holder thereof in India, the proper adhesive stamp is affixed thereto and can celled in manner prescribed by section 12 and such holder has no reason to believe that such stamp was affixed or cancelled otherwise than by the person and at the time required by this Act, such stamp shall, so far as relates to such holder, be deemed to have been duly affixed and cancelled ; (b) nothing contained in the proviso shall relieve any person from any penalty in- ‘curred by him for omitting to affix or cancel a stamp.” 11.11. A number of points arise on this section. We shall take them up ope by one. The first point relates to the proper time of cancellation. The section makes it obligatory on the first holder to aix a stamp on the forcign bill or note and to cancel the game Kejore he does any of the ccts set out in the section. If the stamp is not cancelled at the ‘proper time, it cannot be cancelled afterwards. Thus, where a stamp was ailixed to a hundi which was drawn at Indore before it was prosented for payment in British India, but was rot cancelled before presentation, it was, in a suit on the basis of the bundi, beld that im the face of the imperative worts of this section, it was ampossible to accede to the suggeation that the stamp could be cancelled in the court.* 11,12. On this point, the English law’ is, kowever, different. The (English) of 1891, section 35, Proviso (b), enables a bona fide holder to cancel the stamp it ‘was not cancelled when the foreign bi came into his hands; and upon his so doings bill is deemed to be duly stampod and as valid and available 2s if the stamp had cancelled by the persoa by whom it was afixed. Under the English law, therefors, = Fak ae bill, in order to be admissible in evidence, requires only that the proper stamp should have been affixed Construing this proviso, Blackbur, J. expressed an opinion that the ‘anadaton may be made in open Court at any time before the verdict* 4113. It would, in our view, be aa improvement, if the position which /prevalts in. England is adopted. “The primary object of the requirement of cancellation is to pnsufe that the stamp is not used again. ‘This object is achieved as much by the English provision as by the Indian section. The present holder shapld not be penalised for the faults of the previous holder, We recommend that the section should be suitably amended. 1, Cooperative assarance Co, Lid Asa v. Lachman Singh Bhagat AR. 1951 Bepsu 24 2. Ranprasad Stivialv. Shrinvas Balmadued, (1925) 27 Bom. LR, 1122, 1126. 3. Section 38. Proviso (b) Stamp Act, 1891 Eng.) 4 Mare, vs Rory, (1874) 31 LT. 372, 374 ;28 WR, (Enel) 89. ‘5 Vale. Michael, (1674) 30 Law Tinea 463, 464.97 11.14. ‘The second point relates to the important opening words in section 19, viz, Meaning of “iret “est holder in India". The Act is not concerned with the possession of the bill or promissory note before then. On this point no clarification is required 11.15, ‘The thitd point is important. According to the Madras High Court, the Legis: Masiument taped lature docs mot appear to be interested in whether a promissory note has or has not been outside, Indix- stamped outside India with the rest: that a note stamped outside India will have to be stamped again before endorsement. Thus, when a bill of exchange not payable on demand drawn ‘out of India or a pronote mate our of Inde has been duly stamped abroad wich Indian stamps of the proper amount and description, and the stamps have been cancelled, the question of its being stamped in India arises, because section 19 compels the first “holder” thereof to stamp it before he does any of the acts mentioned therein, The same view was token in another case? of the Madras High Cour—"In the interests of judicial comity”-~and quite apart from any consideration of the correctness of the decision therein. The facts of the case appear, however, to have been reported meagerly. It is also not clear whether the “first iclder of the pronote in India” in this case was the promisee himself ot his transferee, ‘The Punjab Hign Court has, however, taken a contrary view. According to that High Court, if an Indian Stamp is alrcady affixed on the promissory note, then, a fresh stamp willl not be needed, because, to «lo so would be to charge double duty. 11.16. Whatever be the correct interpretation of the existing language of section 3(b) Recommendation read with section 19, it appears to us that there is no reason why an instrument bearing an for "amend Indian stamp should again be stamped with an Indian stamp when it is presented for acceptance or payment or endorsement etc, as contemplated by section 19. Indian revenue law has already been complied with, by affixing the Indian stamp. Af this approach is correct, it would be desirable to add an Explanation to section 19 to the eflect that whee the promissory note already bears an Indian stamp, it shall not be necessary to stamp it again. Such an amendment has been favoured by almost all the replies to our Questionnaire also.” 11.17. The last proposition to which attention should be drawn while discussing section sur 1 eaters 19 is that where a promissory note is executed outside India, it is admissible here if the suit is the Mabitky. Brought to enforce the lability created by the promissory note. ‘The requirement of stamp under section 19 arises only whea @ first holder in India doss one of the specified acts, namely, pre- senimtion for accepiance, presentation for payment, endorsement, transfer or otherwise negotiae tion in India. In an early Madras." It was clearly stated, that the provisions of section 19, Indian Stamp Act, are applicable to a holder only where there is one of those acts set out in the section and that an instrument need not be stamped in the manner provided when it was not ealt with in any of the ways set out. ‘Thus,t even if a pronote executed out of India is not stamped, a suit can be brought on ‘the pronote as between the promisor and promisee. No amendment is required on this point. 1. Sioa Subvomanla. v,Kelorkoayen, ALR. 1941 Mad. 468. 2 Sina Sabramaria ¥. Kataarasan, ALR. 1941 Med. 86, 869, 870 (Meche, 1) 3. ED. Lobo v. Maral Degg, ALR, 1953 Mad. 24 4 Ratan Chand Birooram . LE Xhairativam Nandi, ASR. 1955 4 Ran Ca nj 88, 90, para 5.6. 6 035. 17, Ml Rawihan y Mi Haste Ravihan, (1599) (1.8. 22 Mad 337. 4 Sia Subramonia v. Kalankareyan, ALR. 1961 Mad 868 (case lw reviewed),[etroductory. I pH RQ” B g CHAPTER 12 COMPUTATION OF AD VALOREM DUTY—SECTIONS 20 TO 26 12.1. Duty under the Act is of two kinds—fixed and ad valorem. ‘The computation of duty where it is fixed presents no difficult problems, once it is determined thet the instrument belongs to that particular category. But the computation of duiy ad valorem sometimes presents problems, either because the amount? or consideration is contingent” or unascertained oF is, ‘expressed in kind,® or because it is expressed in other currency, or because of other special cir- cumnstances,—e.g., incumbrances* and periodical payments 12.2. Under section 20, where an instrument is chargeable with ad valorem duty in respect of any money expressed in any currency other than that of India, such duty shall be calculated ‘ow the value of such money in the currency of India according to the current rate of exchange ‘on the day of the date of the instrument. For this purpose, the Central Government may, from time to time, by notification in the Otiiial Gazette, prescribe a rate of exchange for the conversion of British or any foreign currency nto the currency of India for the purposes of calculating stamp-duty. The section needs no change. 12.3. Section 21 provides that where an instrument is chargeable with ad valorem duty 1m respect of any stock or any marketable or otber security, suck duty shall be caloulated on the value of such slock or security according to the average price or the value thereof on the day of the date of the instrument. It needs no change. 12.4. Under section 22, where an instrument contains @ statement of current rate of exchange or average price, as the case may require, and is stamped in accordance with such statement, it shall, so far az regards the subject-matter of such statement, be presumed, until the contrary is proved, to be duly stamped. Ht needs no change. 12.5. Section 23 deals with interest expressly made payable by the terms of an instrument. It provides that such instrument shell not be chargeable with duty higher than that which it would have been chargeable had no mention of interest been made therein. ‘The section is not confined to simple interest, it applies to compound interest also. There fore, a stipulation in an instrument to pay compound interest need not be separately stamped ‘as a separate instrument.® Under the English law also, stamp duty is calculated on the principal sum scoured by am instrument, irrespective of any sum which may become due as interest under the terms of the Snstcument.t 1. BG, Reyaty (ection 26). 2 Ines (ection 2) 43 ig stock ection 21 end secon 254). 4, PoreignCurtency Getion 20and section 22) 5, Sections 2425 & (@ Bainal Rindan Sarit. Stal Chandre, A1.R. 1930 Ca’. 630, 631 ©) {@) Alto, Gomes v. Young, (1869) 2 Beag. LR. (O.C 165) 1a) PrcsingT. fg. (1829) 106 ER, 912, (0) Deed Serio» Snet, (1832) 131 ER. 356, 359. (Peele Mural Assurance Invesment & Loan ex. Asocationv, Carson, (1852) 155. BR. 1275, 9899 12.6. The judgment in Pruessing v. Ing. the leading English case, may be quoted “Abbott C. J.: The Stamp Act imposes upon every promissory note for the pay- Baslish Law. ment at any time exceeding two months after date, of any sum of money exceeding 20s., and not exceeding 30s, a duty of 2s.6d. and other duties upon ‘other notes in proportion to the sums thereby secured. The object of the Legisia- ture was to impose a pro rata stamp duty upon the sum actually due at the time of taking the security, and not upon what might become due in future for the use of the money. The question, therefore, in this case, is, what was the sum «due at the time when the note was taken ? For, that is the sum secured. T am quite satisfied that the words “sums of money” in the Act, mean the principal surm men oned in the note, and not a sum compounded of principal and interest. A con- trary decision would be most mischievous, and have the effect of avoiding many secutities ; for it has been the constant practice, under similar provisions appli- cable to bonds in this and former Stamp Acts, to measure the stamp duty by the principal sum secured, although interest is always made payable from the date of the bond. I think, therefore, that this rule ought to be refused. Rule refused.” 12.7. Where, however, the consideration of the instrument is a lump sum made up of two constituents, namely, the principal and the interest that might accumulate during 2 given perfod, a question may arise whether the instrument will be chargeable for the principal, or whether the instrument will be chargeable for the lump sum. In a Calcutta cete,? a bond for a loan of Rs. 100 stipulated that the obliger shouki “pay twice the amount, including Rs. 100 for interest, total Rs, 200 in eight years from 1301 BSS. to 1308 B.S, according to ‘kists’ (instalments) given in the schedule.” It was held, that the amount secured by the bond was Rs, 200 end the bond must ‘be stamped accordingly. The High Court added that an earlier Full Bench ruling* of the Allaha- bad High Court cited in the reference had no bearing on the matter, 12.8. In 2 Bombay case,‘ the material portion of the Bond was as follows :— “T have taken from you in cash a loan of Rs, 9-4-0 to which 12 annas have been added for ‘Kasar’, total Rs. 10; interest on this sum amounts to Rs. 2-8-0; total Rs, 12-8-0. This debt will be repaid by 25 monthly instalments of eight annas each, Instalments in default will carry future interest at the rate of two rupees ‘per mensem.’ ‘The question arose whether stamp duty was levieble on Rs. 10 or on Rs, 12-8-0. It was held that the bond should be Iiable as to stamp as one for Re. 10 orly, and that the provision about interest should be Jeft out of consideration under section 23. ‘The Calcutta High Court's view! was dissented from by the Bombay High Court. The judgment does not indicate the reasons for dissent. According to the Bombay High Court, if the interest is expressly made payable by the terms of the instrument, then the mere mention of the interest as a lump sum will not render the instrument liable to stamp duty for the total ‘sum of the principal and the interest payable, 129. One can distinguish between the Calcutta and the Bombay cases on the ground that in the Calcutta case, the sum of Rs. 100, though described as (derived from) “interest”, was ‘merged with the principal, so as to bring into being 2 new principal amount of Rs, 200. In the Bombay case, the amdunt of Rs. 2-8-0 retained its character 2s interest. If this explanation is correct, no clarification on the point is needed. It is also to be remembered, that, where a provision for interest changes the category of the inttrument itself, section 23 would have no spplication, ‘Thus, an account written on a sheet ot paper signed by the debtor and addressed to the creditor and also containing a stipulation to 1, Pruesag v. Ing (1829) 106 E.R 912, 23 RP. 253, 2 Shambhu Chancba Bepar! Krishna Charen Bepar, (1899) 1.L.R 26 Cal. 179 (FB) 4. Inthe maner of Gairal Singh, (1884), TLR. 9 All $85 -B) 4. Vita». Nath, (1909) 3 Bom. TLR, 133, 134. 5. Shambiu Chandra Beparlv. Krishna Charan Report; (3899) LLR.26 Cal. 179 (above).Section 23A i E i i ' 100 pay interest, is not a mere “acknowledgement of a debt", within article 1, but is an agreement, tinder article 5(b).* 12.10. According to section 234, — (21) Where an instrament (not being a promissory note or bill of exchange)-~ (4) is given upon the occasion of the depot of any marketable security by way of security for money advanced or to be advanced by way of loan, or for an existing of future éebt, oF (b) makes redeemable or qualifies a duty stamped transfer, intended as a security, ot any marketable security, it shall be chargeable with duty as if it were an agreement or memorandum ot an agreement chargeable with duty under Article No. $(c) of Schedule 1. (2) A release or discharge of any such instrument shall not be chargeable with the like daty. ‘The section was introduced by Act 15 of 1904, and is a reproduction of section 23 of the (english) Stamp Act, 1891, The object of the innovation in sub-section (1) appears to have bee to make provision for equitable mortagages, where che advance is made on the deposit of marketable securities? The section prevonts the levy of a higher duty otherwise chargeable under article 6 (or in cortain circumstances, of 2 still higher duty under Article 40). and 9 Bill of ‘the reason why 12.11. A promissory note would be chargeable under Article 6(2) Exchange would be exempt under Article 40, Exemption 2. That, apparently, those two documents are excluded from the scope of the section. 12.12. Sub-section (2) applies to instruments which seek to extinguish the rights created by the instruments given under sub-section (1) and makes a release or discharge of any such instruments given under sub-section (1) also taxable as an agreement, ie with the like daty. ‘There seems to be no reported case Taw on the present section.* The section needs 20 change. 1213, We now proceed to section 24. It will facilitate an understanding of the section, °F it before we go into details, the broad scheme of the section is dealt with The section could le divided into four parts, namely, the main paragraph, the proviso to the main paragraph, the Explanation, and the proviso to the Explanation. 12.14. Under the main paragraph, stamp duty on the transfer of property, where it is charged ad valorem, is ordinarily calculated on the consideration, subject to certain special provisions which are not material for the present purpose. In determining the amount of consi- eration, the normal case where the consideration is paid at the time of the transfer in the fom ot cash or cheque—that is, in the direct manner—presents no difficulty. But, where the considera tion is paid indirectly, the question may arise how it is to be calculated. There are tito importsat situations which may require to be considered, namely, (i) the transfer may be in consideration of a debt, or (ii) secondly, the transfer may be subject to the payment or transter of any money or stock. ‘The main’ paragraph of section 24, which focusses attention on these two situations, provides that in such cates, such debt, money or stock is to be deemed the whole ‘or part of the consideration. Of course, this rule becomes of importance only where the transfer is chargeable with ad valorem duty. 12:15. The proviso to the main parmgraph enacts thet nothing in the section shal apely to any such certificate or sale as is mentioned in article 18 of the first Schedule, That attic, i . Midchand Lala, Kaght Ballor Biswas, (1907) TLR 35 Cal. 111. following Laxmi Bal v. Ganesh; (9001. R, 25 Bom. 373. 2 The enpressioa “marketable security” is defined in section 2 (ISA). 13 The devsion in LLLR 15 Mad 134 was procounced before the introduction of the section in 1504,101 will be noted, relates to a certificate of sale granted to the purchaser of any property sold by public auction by x civil or revenue eoure of Collector or other revenue officer. A special ease where property is soki subject to morigage or other encumbrances, requires be dealt with, and that is what the Explanation to section 24 seeks to do. We shall diseuss later certain points of interpretation relating to some of the words wed in the Explanation. But, for the present it will suffice to say that the principal ‘object of the Explanation is to casure that the consideration which passes indirecily by the vendor being relieved of his obligation in respect of unpaid mortgage money or unpaid money charged on encumbrances, should be taken into account. The proviso to the Explanation to section 24 makes a limited provision whereunder, where property subject to mortgage is transferred to the mortgagee, he shall be entitled to deduct, from the daty payable on the transfer, the amount of duty to be paid in respect of the mortgage, This is understandable, because what the mortgagee acquires afresh is merely the difference between the value of the property and the value of the mortgage money. He is, therefore, now required to pay stamp duty only on the difference—provided, of course, the duty has already been paid in respect of the mortgage, We may now deat with each of these in detail 12.16. The principle underlying the main paragraph of the section is fairly inteligible. The debt in consideration whereof (or subject to payment whereof) the transfer takes place, is, by fiction of Taw, to be added to the cash consideration, This fiction is understandable, because the amount was indirectly paid to the vendor in the past, or will be paid in the future. The proviso fo the main paragraph also creates no problems. 72.17, ‘The Explanation may sound curious at the first sight. The object of the correspond ing English provision was thus described :* “The scope and object of the enactment is clear, namely, thet upon every purchase ad valorem duty shall be paid on the entire consideration which either directly or indirectly represents the value of the free and unencumbered corpus of the subject-matter of the sal ‘The Supreme Court? has quoted with approval the following observations in a Scottish “If any other rule was adopted, it is quite plain that the fair incidence of this tax ‘would be altogether frustrated and defeated. A proprietor has an estate worth £ 20,000, There is bond lupon it for £ 10,000. He sells that estate; and the purchaser pays to him a difference between the amount of the bond and the value ‘of the estate, so that the bond being for £ 10,000 he pays £ 10,000. The day after he obtains instrument, he pays off the bond. Weil, be practical result of ‘that is that he has paid £ 20,000 as the purchase money of this estate, and he hhas oblained « conveyance with an ad valorem stamp of the value of £ 10,000. That is a simple defeating of the purpose and intention of the Legislature ai expressed in this clause, and, therefore, T think, upon the plain meaning of this section, that there wes no intention whatever to go back upon the enactment of the 16 and 17 Viet. and to restore the enactment of the 55 Geo, Ill, which is what the liquidators’ are contending for. On the contrary, it seems to me that the 73rd section is plainly intended to continue the provisions of the statute 16 and 17 Viet.” 1. Mortimore v. ERC. (1960)2 T & C838 138 U4, Ex. 263, elered toin ALR, 1931 Cal. 193, 197, 2. Board of Revere v. Sidhnath, ALR. 1965 8,C. 1082, c¢ 1084-1095, paragraph 7. X Gap of and Reve 8. Eats City of Olga Rank (1881) 5 Cf Sesions ase 4h 24M of Law/72—14,102 Hisoy soviet, L218. in England, the eorresponding provision in the English Stamp Act of 1815 (55 Go. English prove ryt, Ch. 184) rims as follows = “Where any lands or other property shall be sold or conveyed in consideration, wholly oor in part, of any sum of money charged thereon by way of mortgage, wadset ot otherwise, and then due owing to the purchaser or shall be sold and conveyed subject to any mortgage, wadset, bond or other debt, or to any gross or entire sum of money to be afierwards paid by the purchaser, such sum of money ot debt shall be deemed the purchase or consideration money, or part of the purchase or consideration money, as the case may be, in respect whereof the said a7 valorem duty is to be pai.” Interpretation of poe rong 12.19. The words “money to be afterwards paid by the purchsser” jn the above provision eg Miva in SS Geo. TT, Ch, 184, were explained in Marquis of Chandos v. Commissioner of Inland Darcasen” '"” Revenvet-as follows :— “In the clause which is to define what is the consideration or purchase-money, the term ‘to be paid by the purchaser’ rocan where it is stipulated that he is 10 pay it; ‘ and the provision applies only to those cases, where, in consideration of the con- Veyance of the estate the vendee agrees to pay a certain sum to the mortgagee or incumbrancer. Where the purchaser does not bind himself to pay it, but is left to pay it or not as he pleases, it cannot be a part of the consideration money.” English Act ot 12.20. In consequence of this decision, an smendment was made in 1853. The amended 1883, section ran a8 follows :— “here any lands or other property shall be sold and conveyed subject to any mort ‘gage, wadset or bond, or other debt, or to any gross or entire sum of money, such sum of money of debt shall be deemed the purchase or consideration money or part of the purchase of consideration money, as the case may be, in respect whereof the said ad valorem duty shall be paid, norwithstanding chat the purchaser Shalt not be or become personaly tiabte, or shall not undertake or agree to pay the same, anything in anv Act or otherwise to the contrary notwithstanding”. 12.21. The words underlined above do not occur in leter English Acts ; but, it has been held that there was no intention to make a change.* Hitory of 12,22. The history of the section in our Act was discussed in a Caloutta case." Under section ei ae 44(b) of the Stamp Act, 1869 (18 of 1869), where any property was sold and cogveyed sub- ject to any mortgage or bond ot other debt or to any gross or entire sum of money, such debt fr stim was deemed the consideration money of part of the consideration money as the case may be, in respect whereot duly should be paid, notwithstanding that the purchaser was rot br did not become personally Hable for such debt or sum, or did not agree to pay the tame or indemnity the seller against the same, Ta.the Stamp Act of 1879, in re-enacting this section, the Inst portion (above referred to) was omitted, This resulted in a conflict of decisions. Wheo property subject 10 a mortgage or debt war sold, the High Courts: of Catcutt,* Madr and “Allahabad? held that ad valorem duty was payable in respéct of such sum or debt in addition, only when the purchaser bound himself personally to pay the same or indemnity the vendor Later English Aes. 1. Maras of Chandos v. Commissionar of Inland Revenue, (1851) 6 Bx, 464 (481): 155 ER, 624 (82) Z.0. LJ. Ex. 269 517 LT. (CS) 128 (Quoted in ALR. 1931 Cal, 198 = $8 Cal... 33 (FB). 2. Hlaaidaors ete.x. CHR. (1881) 18 Scott. R. 240; (6) Wayne v. CLR. (130) 1 Q.B. 172. 4. UK, Janardan Ron. Secretary of State, ALR. 1931 Cal, 193 (Rattkin, C1) 1k Inthe mater of reference fram the Boprd of Revert, (1884) TLR. 10 Cal. 92 in case No, 1/1881 (1982) TLR 5 vance tom D.}. South, Malabar undee secon 49, General Slap det i 5. Referens rom Do. South aa i Gt Revenue fn case No. 3) 1864 under sexton 45, Indlan Strap Act 1879 (1884) LR. 7 Mad. 621 (F). 6. Snake Prased v. Reon Narain (1882) ULR. 15 All. 107.103 ‘against the same. But the Bombay High Court held,* that i aff cases stamp duty was payable con the total of the purchase money and the mortgage debt. We shall revert to this controversy tater? 12.23. Another difficulty arose from the lunguage of section 23. According (0 some Borabay decisions, a transferee of a property subject to morigage need not pay duty on the interest due fon the mortgage, through he woul have to pay such interest before redeeming the property, But now the express language of the Explanation to section 24, makes the morigage debt ‘or money charged, together with the interest due upon it, as part of the consideration for sale, 12.24. As to sale subject to encumbrances and stle got so subject, the question may be ‘aised whether this distinction, even if relevant for the purpose of the law of transfer of property, ‘has any relevance in regard to the charge of duty under section 24, Explanation. The answer is that the distinction is relevant, because the Explanation is intonded to apply only where the seller purports to sell the equity of redemption. It is only where such a sale is made—a sale subject to encumbrances—that the need for udding the amount due to the mortgages can arise, 1a other cases, the purchaser would have calevlated the price on the unincambered value. In Hortimore v. Inland Revenue Commissioners, Baton Martin, explaining the provision then in foree in England, put the matter thus : “The scope and subject of the cuactment® is clear, namely, thet upon every purchase, ‘ad valorem duty shall be paid on the entire consideration which either direcity for indirectly sepresemts the value of the fee and unincumbered corpus of the ssubject-maticr of the sale.” 7 Jn the case where the sale is not subject to incumbrances, the purchaser would alteady have paid the full value, and the need for applying the enactment does not remain. 12.25. If the Explanation to section 24 is regarded as applicable even where the sale is free ‘of jncumbrances, there will be double charge of duty. A sells 10 B certain property, without stating the incumbranees. Since B was not told of any incumbrances, he would, one may assume, hhave paid to A the normal price as for property not encumbered. In such cases, the “property” is subject to morigage, though the sale is not. Should the Explanation apply? Should it be rea~ sonable to apply it? ‘The mortgage money is added (for stamp duty), because, indirectly, the seller. is benefitted by the fact thar discharge of the incumbrance is now at the cost of the purchaser. 12.26. In coastruing the proviso to the Explanation, Mclood C.J.° observed in the Bombay cave: “The proviso belongs to and must be read with the Explanation which is to the effect that if a mortgagor sells the equity of redemption, the amount due by him to the mortgagee for prinefpal and interest shall be ‘deemed to be part of the considera tion for the sale."? As Rankin CJ. observed in a Caleutta case “The first question which can be put is whether the phrase “subject' fo 'a morigaye “oi other incumbrance”, qualifies the word: “property” or qualifies the word “sale”. 1 @) Sich Nagivduad Tavachand v, Nathara Nathowa Chegela, (88) LER. 5 Bows. 470. ©) Meer Kaisur Khan. Ebrahin, han (1891) LL. Re 15 Bora. $32. 2. See “Comment on the Explanation”, iva 3. Section $5 (1) (g), Transfer of Property Act 4 Mortinore ¥. ERC. (86) 33 LJ. Bx. 263,266; BRR, 615 : ISDER. 347, 5, Stamp Act, 1815 (Eng.) 6, tere Frank Portolock: (1926) L.LiR. 50 Bom. 640, A.LR, 1926 Bom. 542 Mclood CJ, 7. Ta the judgment, by slip the word “mortgage” is used in pce of “sale”, 8. Samaras Rao ¥. Seretary of Stae, AAR. 1931 Cel. 193, 195, Question of ime terest not OF im portance. Relevance of Getinction bet ‘wen sale subject to. encumbrance and “other sae,‘Agreecseat reliev- 104 It the former 1s the correct meaning, then property which is, in fact, subject to a morigege will, if it is sold, attract the consequences sot forth in the Explanation, whether or not the property is sold on the icrms that the veador is to clear off the mortgage and give co the purchaser a clean title. In Waman Marland v, Com- missioner, Central Division,’ this question was raised and it was held that the clause “subject to a mortgage or other incumbrance” governs “sale of property” and not “property”, that property may be subject to a charge and yet the sale may not be subject to it and that where a bargain between the vendor and the purchaser is that the vendor “will make @ good title free from all incumbrances, the Explanation does not apply. I am clearly of opinion that this is the comect view. To begin with, an instrument is to be stamped according to the nature of the bargain. That is the general principle in the ight of which a question of this character must be approached. The Tanguage of the main clause shows that the question is whether the property is tiansferced subject to the payment of money. ‘The Explanation is in my judgment entirely consistent with the language of the main clause. 1/ property is subject to a mortgage but the vendor, in return for the purchase price, is to give a clear tile free from all incumbrances, the Explanation does not apply? Nor does Illustration 2 apply, for, the case there put is clearly not a sale free from the incumbrance. It is dangerous to rest one’s view uf a clause in the Stamp Act upon reasons of justice or feirplay. Stil, i¢ would require very clear words to induce one to think that where the purchase price is given as the full value of the property and the vendor as part of the considerations therefor: undertakes to clear off all incumbrances the amount of the incumbrance was in- tended to be added to the whole value of the property and stamp duty assessed ‘upon the same thing twice over.” 12.27. Fawoett J. observed? i nthe Bombay case -— “The Explanation end Ulustration (2) t0 section 24 of the Indian Stamp Act have been rather Icosely drafted. But 1 am satisfied that the intention is that the Explanation should only: cover cases where the purchaser undertakes {0 pay the mortgage debt,” ‘We shall refer to the view of Marten J. Inter 12.28. Opinions can vary as to the ratio decidendi of the above Bombay case. The deci- sion could be construed as resting solely on the ground that though the property was subject to the charge, the vendor undertock to clear off the incumbrance and to peciect the tile of the vendeo free from all eacambrances.' The opinion expressed by Marten J.. however goes beyond that. According to him, the Explanation must be confined to cases where, 9s part of the consi- deration which the vendor gets for the transfer, the Vendor is to be relieved, expressly of impliedly from the burden of the mortgege és between himself and the purchaser. 12.28A. If the latter proposition is to be regarded as the basis of the judgment in the Bombay case, then it must be noted that it hans not beer: accepted by the Calcutta High Court," where Rankin C.J. observed, (with reference to the Bombay case)—"No such qualification is to be found in the Explanation itself or in the illustration which is given by the legislature to throw fight upon its meaning.” In the Calcutta casc, the vendor had puichased the property jin a court auction, and sold it to the vendee for Rs. 1,000. There was a mortgage on the Tassel Co, ard i, Ti Eom SENET er camnin ol AUK 4 Bn, 2567 imenae LER Mager105 property, on which a suit had been instituted by the mortgagee against the mortgagor. A sum ‘of Rs. 25,636 was outstanding on thai mortgage. ‘The faci of the mortgage suit having been instituted was mentioned in the sale deed. ‘The instrument was stamped as a conveyance for Rs, 1,000 only. It was held, that as the property was sold subject to the encumbrance, the conveyance was liable to siamp duly on Rs. 1,000 plus the encumbrance. Examining the meaning of the phrase “subject to a mortgage or other incumbrance”, the court held that the Phrase governs the words “sale of property”, and not the word “property”. Where the sale is not subject to a mortgage (though the property concerned may be s0 subject), the Explana- jon has no application. Vhus, if the property is subject to a mortgage, but the vendor, in retum for the purchase-money, is to give a clear fitle free from all encumbrances, then the Explanation does not apply. The unpaid mortgage money in the case of a sale subject to a mortgage, is to be deemed to be part of the consideration for the sale, not because it is part ‘of such consideration, but because the legislature is determined tw tax it. Consequently, an enquiry into the question whether the mortgage amount, in fact, proved part of the considera~ tion, is wholly irrelevant. 12.29. In an Allababad case,’ the High Court maintained that where an immovable property, which is encumbered by a charge or a morigage, is sold but no? subject to the incunbrance, then the amount of money constituting the charge or mortgage need not be added to the consideration mentioned in the conveyance as the value of the property sold. ‘The words of section 24 beginning with “subject cither” and ending with “property or not", apply to the word “transferred”, and not to the word “property”. 12.30. The Supreme Court? in an appeal from the Allahabad case, held the view that the phrase “subject to a morigage or other encumbrance” qualifies the word “sale”, and not the word “property”. Jf the mortgaged property is sold subject to a mortgage, then and then only the Explanation applies; the phrase does not mean that whenever mortgaged property is sold, then Explanation is to apply. It is plain from the Explanation that it is only the wopaid ‘mortgage money that is deemed to be part of the consideration.* 12.31. While the judgment of the Supreme Court settles, in general, the meaning of the words “Subject to”, it docs not concern itself with the major controversy, namely, is it necessary that the vendor should have been relieved of his obligation ? 12.32. It appears that the difficulty on the above point seems to survive even now, and the Explanation to section 24 should be made more specific than at present. ‘The question that remains unsettled is--Is the Explanation applicable only where the purchaser undertakes 0 pay the incumbrance, or is it wide enough to cover other cases where the incumbrance is ‘outstanding? We do not think that the applicability of the Explanation should be limited to ‘eases where the purchaser undertakes to redeem the incumbrance expressly or by implication. Once it is proved thar the incumbrance is outstanding, its value ought to be added to the consideration paid, because tho vendor has benefited by the sale being subject to incumbrance. 12.33, In the Bombay case, Marten J. observed :— “This Explanation must be read along with the main portion of section 24, which refers, in my opinion, to the consideration payable to or moving towards the vendor® and not to that payable by or moving from him......1 think, therefore, that the Explanation on its true construction must be confined to cases where, ‘as part of the covsideration which the vendor gets for his wansfer, he is to be. ‘relieved expressly or impliedly from the burden of a mortgage as between himself and the purchaser.” ‘The question to be considered is whether this is the correct view. : ~[Sidimath Meleoiva v. Board of Revenue, ALR, 1959 AU 655, affirmed ia Board of Revenue v. Skdinach, ARE “1965 "S.C 1082. 2, The Board of Reverue UP. v, SHlinaih Mehrotra, ALR. 1965 S.C. 1082. 1X See lw Collector Abuesiution v, Deepak Textile Industries, ALLR. 1966 Gwarat 227 (F.B.) Woman Mertond v. Comnstorer, Cental Division, ALR. 1924 Bom, $24, 826. 5. Barphasis supplied106 Faplation ape 12.34. 11 is selled by Supreme Court that the Explanation would apply | where the able OM. sale of property is subject (0 a mortgage, ie., where the vendor docs not purport 20 give ja FEEL, ecu good ttl free from the incumbrance. “But, on the question whether the tet i 10 soe the purchaser is of i not suddted with the burden, the Supreme Court did not express a view. Glaiaton iar 12.85, Hence a vlrifeation is nesded and i should be by way of widening the scetion. Line on wich 12:36. 1n our view, it Woulsl be convenient if the comet position discussed above is hinendewnt Deedee incorporated into the section. Whar is needed is—(i) to indicate that it is the sale which is subject to mortgage; (ii) to also indicate that there nced not be an undertaking by the pur chaser 0 pay the amount, in order that the section may apply; and (iii) to revise illustration 2, in view of the criticism thereof in the Bombay case,* by Faweett. We may add chat such aa amendment has been generally favoured by the replies 10 our Questionnaire." gggmmodaion 12.37. We recommend the following re-rat of section 24, in the light of the above 0 se- discussion. : toa Revised section 24 “24, Where any property is transferred to any person i— (a) in consideration, wholly or in part, of any debt due to him, or {b) subject either certainly or contingently to the payment or transfer to him or any other person of any money or stock, whether the money constitutes a charge for incumbrance upon the property or not, such debi, money or stock ix to be deemed the whole or part, as the case may be, of the consideration in respect whereof the transfer is chargeable with ad valorem duty : Provided that nothing in this section shall apply to any such certificate of sale as is men- tioned in Article No, 18 of Schedule 1. ‘ Explanation.—Where property is sold and the sale is subject to a mortgage or other incumbrance, any unpaid mortgage money or money charged together with the interest Gt any) due op the same, shall be doemed to be part of the consideration, for the sale, whether or nor the purchaser expressly unslertakes with the seller 10 pay the same or to indemnity the seller if the seller has t0 pay the same Provided that where any property subject to 2 mortgage is transferred to the mortgagee, ho shall be entitled to deduct from the duty payable on the transfer the amount of any duty already paid in respect of the mortgage. Mlustrations (4) A owes B Rs, 1,000. A sells a property to B, the consideration being Rs. $00 and the release of the previous debt of Rs. 1,000, Stamp duty is payable on Rs. 1,500. (2) A-sels a property 1o B for Rs. 500. The property i subject fo a mortgage to © for Ro 1,000 and unpaid interest for Rs. 200. The sale és subject 10 the mortgage, Stamp uty is payable on Rs. 1,700. (3) A mortgages a house of the value of Rs : buys the house from A. Stamp duty is payable on Rs, already paid for the mortgage. 10,000 to B for Rs, 5000 B afterwards 10,000 less the amount of stamp duty “Taveh Renae © Sita ALR, BE SG 103 ai 1 Bao ev «Sth Me tt Dor, ALR. 1926 Bn $04 SDS Fe Bae ee 1 Gein 35107 12.38, Section 25 deals with stipulations for payment of annuities or other periodical payments. Such payments, since they are spread over a number of years, raise questions of ‘the basis for calculation of stamp city. The section makes detailed provisions in that cegard. It deals with two situations : 7 or other (where an instrument is executed to secure the payment of an anm sum payable periodically, or (i) where the consideration for a conveyance is an annuity or other sum payable periodically. The section provides that the amount secured by such instrument or the consideration for such conveyance, as the case may be, shall, for the purposes of this Act, be deemed :— (a) where the sum is payable for a definite period so that the total amount paid ean be previously ascertained—such total amount ; (b) where the sum is payable in perpetuity or for an indefinite period not terminable with any life in being at the date of such instrument or conveyance,—the total amount which, according to the terms of such instrument or conveyance, will or may be payable during the period of twenty years calculated from the date ‘on which the first payment becomes due 5 (©) where the sum is payable for an indefinite time terminable with any life in being at the date of such instrument or conveyance,—the maximum amount which will or may be payable as aforesaid during the period of twelve years calculated from the date on which the first payment becomes due. 12.39, As regards situation (a)', it is to be noted that the sum total (of the periodical payments) will be treated as the consideration for the purposes of valuation for stamp, even it, by a stipulation, the partics are entitled to terminate the periodical payments. Where, therefore, a lease of mines was given for a definite period (99 years), but the lessee was given fan option to terminate the lease at any time during the fixed period or in the: event of the mines getting exhausted before expiry of the period, it was held* that the lease fell under section 25(a). The Court referred to the definition of ‘lease'® in the Transfer of Property Act, under which the right to enjoy the property is to be given for a certain period, express ‘or implied or in perpetuity and emphasised that the mere fact that the interest is terminable tbetore the expiry of the time fixed or after expiry of the time fixed, does not make the transac- fiom any less a lease. 12.40, Clause (b) of scetion 25 applies when the payment is in perpetuity or for an indefinite period. Here, the total amount payable for @ period of twenty years is the valuation. 12.41. We may refer to an Indian ruling! relevant to clause (b). By 2 document, a person bound himself and his posterity, on the security of some immovable property, for the annual payment to 2 temple of Rs, 21-4-0 and 3 ‘hadus’ of oil; the Madras Board held, applying section 25(b), that it was a mortgage deed chargeable ‘with duty calculated on 20 years’ payment of oil at Rs. 15 and Rs. 21-40 in cash per anntim, 1242. Clause (c) of section 25 applies to cases where the sum is payable for an indefinite tihie-terminable with any life in being at the date of the instrument. The maximum amount whieh‘ will or may be payable during the period of twelve 'years will be treated as the amount fof consideration for the instrument in question. Thus, an ‘award by which a certain sum was ‘made payable to a certain person, without any mention as to whether the sum was secured or intended to be secured to the heirs or representatives of the person, was held to be chargeable ‘under this clause, as document securing an annuity.* Similarly, where, on retiring from a 1 Para 12.38. > 2 Deverkherci Cement Co, Lid, ¥, The Secretary of Stale ALR. 1939 Bom. 215 (Rangoekar, J.) 244-222, 192. 3, Section 105, Transfer of Property Act, 1882. 1, Madras Board Peron 24 (R) ; Mise., dated 30-1-1908 Madras Stamp Manus! (19%), Page 122, . Reference under the Stamp Act (1898) 16 AWN. 199, Section 25.Section 26—~ Introductory. Rationle of the section Daty on bords— Artie 15, 108 firm, one of the two partners assigned hhis interest in the firm to his pariner in consideration of Rs, 6,000 plus an allowance of RS. 35 pec month, ic wes held that for the purposes of stamp valuation, the conveyance must te trented as for a consideration for Rs, 6,000 plus Rs. 5,040, tolal Rs. 11,040.+ We may conclude our discussion of section 25 by stating that the cases illustrating the working of the section, mentioned above, do not suggest any need for amendment 12.43. The computation of stamp with ad valorem duty presents also problems where the amount of value of the subject-matter is indeterminate, According to section 26, where the amount or value of the subject-matter of any instrument chargeable with ad valorem duty, cannot be, (or in the case of an instrument executed before the commencement of this Act could not have been), ascertained at the date of its execution oF first execution, nothing shall bbe “claimable” under such instrument mote than the highest amount or value for which, if stated in an instrument of the same description, the stamp actually used would, at the date of such execution, have been sufficient. Under the proviso to the section, in the case of the lease of a mine in which royalty or a share of the produce is received as the rent or part of the rent it shall be sufficient to have estimated such royalty or the value of such share for the purpose of stamp duty,— (a) when the lease has been granted by or on behalf of the Government, at such amount or value as the Collector may, having regard to all the circumstances of the case, have estimated as likely to be payable by way of royalty or share to the Government under the Jease, or (b) when the lease has been granted by any other person, at twenty thousand rupees fa year; and the whole amount of such royally or share, wherever it may be, shall be claimable under such lease, Under another proviso, where proceedings have been taken in respect of an instrument under section 31 of section 41, the amount certified by the Collector shall be deemed to be the stamp actually used at the date of execution. 42.44. As has been observed,? “unlike the evidence Act, the Stamp Act does not base its rules on the theories of relevancy of public policy. It is purely fiscal, and insists” that certain documents shail pay a contribution. to the State according to the purpose far which they were executed. In regard to certain documents which create a right to money, it prescribes that unless the stamp is proportionate to the valuation of the claim, the document hall be in- admissible in evidence, and where the intention of the parties is that the valuation. should be tuclimited, it enacts, by section 26, that the claimant will be entitled to realise a sum propor- tionate to the stamp fee paid, subject to certain exceptions in the case of royalties, It follows that wherever the claim excceds the amount proportionate to the stamp, the docament is not duly stamped for the purpose for which it was executed within the meaning of section 35, and the provisions of this section have to apply thereto, ‘A typical instance of instruments where'the value is indeterminate is a lease of mines. This case is expressly mentioned in the section. In such leases, the amount which will be realised {altogether uncertain, In regard to other instruments, a few cases have arisen under the sectton. ‘Thest may ‘now be referred to. 12.44A. Article 15 relating 10 bonds provides that ad valorem duty should “be paid on ‘the amount or value secured by the bond. An instance of a bond for an indeterminate value ~ ine i oi nF Wo, CH Samp Wann 9D Pas 5, : 1 mor Mahon Sh Lacinaran Arn, AER. 1920 Pt 5109 is to be tound in an Allahabad case," relating to a bond by a grower of sugarcane to deliver some quantity of rab (unreficed sugar), at a price to be fixed at the meeting of growers. 12.45, The Caleutta High Court bias held that for bonds for delivery of grain, if proper stamp duty is paid on the value ot the grain secured a5 fixed in the instrument, the document is properly stamped under Articie 15, and section 26 would not operate (© prevent the recovery of a higher amount as the value of stich grain on account of subsequen: rise in prices.* 12.46, In the case of morigage-deeds executed to secure future-advance on a running Duty on mortgage account, or containing otherwise a stipulation of the maximum amount of liability under the document, stamp duty would be payable on the amount fixed as the maximum limit of ability, though the amount might not have been actually advanced, If such stamp duty has been paid, then an amount upto thet limit mentioned in the deed can be recovered in 2 court of Law, notwithstanding that more than that limit was privately realised by the mortgagee on different occasions. In another Caleutia case,’ e mortgage-bond, intended to secure future advances upto the sum of Rs. 10,000 at a time, was executed on a stamp paper of Rs. 50, and, under it, altogether reore than Rs. 10,000 had been privately realised by the mortgagee on different occasions. It ‘was held that there was nothing in section 26 to prevent the mortgagee from suing to recover the balance of the debt due on the mortgage. Even if the stamp is deficient, section 26 has 10 application to the ease, and the full amount due on it can be clsimed on payment of deficient stamp duty and peralty under section 35. 12.47. If such maximum ix not mentioned, and if the document purports to secure an amount without limit, then it appears that section 26 would operate to restrict the amount laimable under it to the maximmum amount covered by the stemp 12.48. There are decisions pointing out,* that section 26 applies only where the amount for valuc of the subject-matter of any instrument chargeable with ad valorem duty cannot be ascertained at the dute of its exceution. Thus, if in an instrument, the value of the subject- matter is determinable on a reasonable basis, then, section 26 has no application.® The circumstances governing the applicability of the section were examined in a Madras case? in which a certain land was leased out for ten years, for being planted with a certain raénimum number of casuarina trees, on the condition that at the cnd of the time, the trees planted should be cut and sold, and the profit of sale proceeds of the trees so reared divided equally, deducting the expenses of cutting etc. It was held that clearly, the subject-matter ‘was an ascertainable item at the date of contract, it being a certain number of casuarina trees or their equivalent valve. The contention, that the value of the trees at the end of 8 or 10 years. was not ascertainable at the time of the contract was rejected. 124BA. We now proceed to consider the question whether section 26 is subject to, and governed by, section 35, Section 35 prohibits the admission in evidence of any unstamped but, under the proviso to that section, an instrument not sufficiently stamped can ‘be admitted on payment of penalty. Under section 26, “nothing shali be claimable” under the instrament in question beyond the amount or value for which the stamp sufficient. ‘The section is silent as to whether this Te Hf a fh ATT Reet a Ant i on 3a 2. Harendera Lal Roy Chowdhary v. Tarini Charan Chakrabarty, (1904) LLR. 31 Cal. 807. iat Gey a ae Rs BY a Pm 2 SE ere SGD CRATE tan testa «Sone Sere i et 1B Aston AAR e986 0 AM of Lawi7—15Case law. Need for clas fication, eo tor tevying Denaley. 10 12.49. However, notwithstanding the stringent phraseology of the section, it has been held® that there is nothing in section 35 which necessarily excludes its operation from cases covered by section 26, As a matter of fact, it would be a strange result if an instrument bearing ne stamp and, therefore, not admissible in evidence for wan’ of stamp. could be validated by payment of penalty under the proviso to that section (section 35), whereas a similar instrument bearing a deficient stamp and, therefore, admissible and enforcenble to a limited extent, could. in no case, be fully enforced even by paying the penalty, tt is, therefore, reasonable to read section 26 as subject to section 35. 12.50. Thus, where a mining lease bears a stamp? of a certain value, the lessor's right to recover royalty under the lease is not confined to the amount covered by the stamp. Tf it is found that he is entitled to @ greater amount, he can be given a decree for the sum to which he ‘ entitled on compliance with the provisions of section 35, This is the position even where the second proviso to the section is not applicable, 12.51, In our opinion, it is desirable to clarify the position as 10 the inter-relationship of sections 26 and 35, particularly because in section 26, the words “nothing shall be claimable” do not reflect the true intention of the judicial construction. It is desirable to replace the ‘words “nothing shall be claimable” by words which will ensure that the deficiency in stamp can bbe supplied. ‘The major source of the present trouble is the disharmony in wording between the two sections. Section 26 uses the words “Nothing shall be claimable but section 35, main paragraph and proviso (a), use the words “admitted in evidence”, This disharmony ought to be rectified. The amendment of section 26 as to applying section 35, has, in principle, been approved by the replies to cur Questionnaire.* 12,52, Besides this clarification, we would also like to recommend a change of substance. The precise question to which we have addressed ourselves is this. 1s there any justification for the levy of a penalty in the case to which section 26 relates? As the position is now understood, this cannot be avoided, because a relaxation of the stringency of section 26 can be sought only from section 35, and that section contemplates payment of duty as well as of penalty. The question is whether this is just and equitable. ‘Though this point was not put in our Questionnaire, it came up for elaborate discussion. We ate satisfied that the point is important enough to require examination. Im this connection, we cannot fail to notice that the situation dealt with in section 26 is in a class by itself. In the normal case for which section 35 is intended, the duty chargeable either was known, or at least could have been known with reasonable diligence, at the time of execution, Im the very special situation to which section 26 applies. however, the duty ould ‘not have been known with any amoutit ‘of reasonable diligence, at the time of execution. Prima facie therefore, it would appear to be Iegitimate to make a distinction: between the: normal case to which section 35 applies and the exceptional case for which scction 26 is intended. We do not think that if such a distinction is made, there is possiblity of any serious abuse, To repeat in a different form, what we have stated above, the levy of penalty is inequitable in such cases, since there has been no default. ‘The interests of the revenue are sufficiently protected by the levy of the deficient amount of duty. In our opimon, there is no justification for levying penalty in addition. The situation in section 26 can hardly be regarded as an analogous to the normal situation under section 35, which assumes that :— (@ that instrament is chargeable, and (i) that itis chargeable ‘with duty’—which seems to postulate a definite amownt, 1 Fire Be Mohn Sih: Lt rn Agar, KL 1590 Ba. 0,5 (Dawa Milt Cand Mic () Lech Resin». Rajshrar, ALR sot BG Bh 2, Braj Mohan Siva y. Lackmi Noval, ALR. 1929 Patca 50,55, affirmed in Lachmi Narain v. Ralbwar ‘AiR BaEC DY cat 5. Question 37.ut It is on this logic that we consider it proper to recommend that in elation 0 section 26, while so much of section 35 as relates to payment of the deficit may be adopted, it is not necessary that the penalty should also be levied. For the purposes of. section 26, therefore, the penalty portion in section 36 should not be adopted. We may state that in so far as the amount claimed under the instrument can be ascertained only when the claim is inade, the casc is more analogous to cout fees, where the penalty is levied then to the normal situa- tion under section 35. In the Court Fees Act, in suits for accounts, deficieney can be made up. 12.53. We, therefore, recommend that section 26 should be revised as follows "26. Where— (a) the amount or value of the subject-maticr of any instrument chargcable with ad valorem duty cannot be, or (in the case of an instrument executed before the commencement of this Act) could not have been, ascertained at the date of its execution or first execution, and (b) what is claimed under such instrument exceeds the highest amount or value for witich, if stated in an instrument of the same description, the stamp actually used would, at the date of such execution, have been sufficient the instrument shell be deemed 10 be insufficiently stamped as regards the excess and the prom visions of section 38 shall accordingly apply in relation 10 the admission in evidence of the instrument Provided that for the purposes of such application of section 35, 10 such an ins:rument, tt shall be sufficient if she deficiency in the duty is paid, and no penalty shall be levied. Provided jurther that, in the case of the lease of a mine in which royalty or a share of ‘the produce is received as the rent or part of the reat, it shall be sufficient to have estimated ‘such royalty or the value of such share, for the purpose of stamp-duty,— (a) when the lease has been granted by or on behalf of the Government, at suc amount or value as the Collector may, having regard to all the cizcumstances of the case, have estimated as likely to be payable by way of royalty or share to the Government under the leate, ot (b) when the lease has been granted by any other person, at twenty thousand rupees fa year; and the lease shall be deemed to be sufficiently stamped as regards the whole amount of such royalty or share whatever it may be, Provided also that, where proceedings have been taken in respect of an instrument under section 31 of 41, the amount certified by the Collector shall be deemed 10 be the stamp actually used at the date of execution. Recommendation,Section 27-— in Connection with Charging stile, li CHAPTER 13 FACTS TO BE STATED IN INSTRUMENTS—SECTIONS 27-28 13.1, Section 27 provides that the consideration (if any) and all other facts and ciccums- tances affecting the chargeabilily of any instrument with duty, or affecting the amount of the duty with which it is chargcabie, shall be fully and truly set forth therein, Failure to do so is punishable, under another provision—section 64.2 What facts and circumstances affect the chargeability of the instrument or the amount of the duty, depends on the scheme 9s to the charge of duty and, in particular, on the article applicable to the instrument in relation to which the question arises. Confining ourselves 10 instruments dealing with property, we may state that there are four possible alternatives which could be thought of, for arriving et the amount of the duty chargeable, namely :— (a) amount or value ot the property as set forth in the instrument? ot its equivalent;* {b) valuc of the property, but not confined to the value as set forth in the instrument ;* (6) consideration as set forth in the instrument ;* (2) consideration for which the transfer is made, e.g., rent® 13.2, Thus, the manner in which section 27 operates in relation to particular instrument largely depends on how the charging article is worded, that is to say, which of the various alternatives enumerated abdve is taken as the governing criterion in the charging article, For this reason, amendments made in section 27 by some of the States cannot be commented upon ‘unless the criterion adopted in the charging article is sought to be revised. In fact, it is the charging article which will be the principal subject for consideration, and an amendment of section 27 would really be consequential on the change to be made in the charging article, In regard to section 27, therefore, the discussion will be confined to those amendments which can be considered independently of the charging articles. 13.3. In some States, an amendment has been made empowering the Registrar to hold ‘an inquiry. The Orissa’ amendment is an example. Section 47A (Orissa) reads— “4T-A. (1) If the registering officer appointed under the Indian Registration Act, 1908, while registering any document relating to transfer of property, has reasons to believe that ‘the value of the property or the consideration, as the case may be, has not been traly set forth in the instrument, he may, after registering such instrument, refer the same to the Collector for determination of the value or consideration, as the case may be, and the proper duty payable thereon. (2) On receipt of a reference under sub-section (1), the Collector shall, after giving the parties a reasonable opportunity of being heatd and after holding an enquiry in such manner as may be prescribed ty rules made under this Act, determine the value or consideration and the duty as aforesaid and the deficient amount of duty, if any, shall be payable by the person liable to pay the duty. 1. Section 64) (@), 2, BG, Aris 12), 23,31, $5, $8 and 64, : 3 Amite 33 it 44. This is hypothetical 5, Articlo 23 (Conveyance) 6 BG, Articles 35 and 63 7, Section 47A inserted ia Orissa by Orissa State Act, 1962 (35 of 1962), an amended by Orissa Act, 1965 (11 of 1365), 12113 “(2A) The Collector may suc motu, within two years from the date of registration of any instrament not already referred to him under sub-section (1), call for and cxamine the instrament for the purpose of satistying himself as to the correciness of its value or consideration, ‘ts the case may be, and the duty payable thercon and if after such examination, he has reasons to believe that the value or consideration bas not been truly sel-forth in the instcument, he may determine the value or cossideration and the duty as aforesaid in accordance with the procedure provided for in sub-section (2); and the deficient amount of duty. if any, shall be payable by the person liable to pay the duty. (3) Any person aggrieved by an order of the Collector under sub-section (2) or sub- section (2-A) may, within thirty days from the date of the order, prefer an appeal before the District Judge and all such appeals shall be heard and disposed of in such manner as may be prescribed by rules made under this Act.” 13.4. In order to facilitate consideration of the question whether such an amendment should be recommended, it is clesirable 10 examine the scope of section 27. The scope would be better understood if the following propositions are borne in mind : (1) The reveaue of the Government is protected by requiring the partics to make a true’ and full disclosure of all fucts and circumstances having any bearing on the duty payable, failing which they must suffer the consequences of their false and defective statements, (2) It it be found that the omission to state the value of the property or the under valua- tion was intended to defraud the Goverament, then a prosecution would protect the Govern- ‘ment against the attempted fraud.* (3) In determining whether a document is suficiently stamped, the document itself as it stands, and not any collateral circumsainces which may be shown in evidence, must be looked into . ees} (4) For the purpose of stamp duty, the valuation given in the instrument (where the value as set-forth is the test) would have to be accepted. If there was an. intentional under- valuation, the fear of prosecution would protect the Government against the attempted fraud. There is no provision in the law? authorising the Collector to ascertain the value of the property ‘with a view to causing the instrument to be stamped with reference to the value thus ascer- tined.‘ If a document—eg, 2 mortgage-deed—is silent regarding the consideration, or if Ht does not sel-forth the circumstances from which it could be gathered that how much stamp duty is to be peid, then the Collector has no power to take any evidence to find cut the considera? loa. The only thing left for bin: is to prosecute the executant for not complying with the provisions of secticn 27.¢ 2B. In Himalaya House Co's ease,* she Supreme Court held : “Te is true thet in view of section 27 (of the Indian Stamp Act), the parties to a document are requited to set forth in the document fully and truly the considera~ tion (if any) and “all other facts and circumstances affecting the chargeability of that document with the duty or the amount of the duty with which it is charge- able. But 2 failure to comply with the requirements of that section is mersly punishable under section 64 of the Stamp Act. No provision in the Stamp Act empowers the Revenue to make an independent inquiry of the value of the property conveyed for determining the duty chargeable.” 1, (@) Boord of Revemes, Madras v. K.R. Venkataraina Ayyor ALR. 1950 Madras 738 () tn re Venkarswami, ALR. 1953 Mad. 981 2, Ramon Chetty. Mohomed Chause and another, (1899) LR. 16 Cel, 435 3. Except for losal amendments—e. Orissa amendment. 4 ba the mottev of Mavonmad Museor Al; ALR. 1922 AU.82 @)(E.B) S, Mian Baksh & others v Comp; AUR, 1945 Lats. 69. 6 Mimala Howe Co,,v CRA. ALR. 1972 S.C. 399, 94, 905. the pid SoeMadras view. 4 After reviewing the High Court decisions, the Supreme Court observed :-— “The legislature may have had good reasons for not empowering the Revenue 10 ‘make an independent inquiry as regards the valuation of the right sought to be assigned”. In this case, it was held that there wes no basis for holding that the consideration for the impounded assignment decd, which had declared that there was no consideration, was the total amount received by the assignor under the agreements entered into between him and the persons to whom he had assigned certain rights in the flats, offices and shops in the building. It was held that those persoas had an independent right of their own, and that their rights did not flow from the impounded assignment deed. Jt was, therefore, held that the considera tion to be taken into account under article 23 (conveyance) was nil, as the assignment deed itself mentioned that there was co consideration, and there was no intention to incorporate the other agreements into this deed which, therefore, could not be taken into account for the purpose of calculating the duty on the impounded document 13.6. In one Allahabad case,’ the Godavari Sugar Mills, being the owner of property consisting of land, buildings and machinery, purported to sell these to the Somaiya Organics for 2 certain consideration. The sale-dced recited that the land and buildings were conveyed for a certain amount X, while the balance represented the price of machinery, vehicles, stores ‘and other goods which were treated as movable items and the transfer of which had bem completed by manual delivery. The Advocate General, on behalf of the State, argued that the intention of the sale-dced was to transfer the entire properties of the Godavari Sugar Mills ‘and that the machinery, vehicles etc. were also transjerred by the deed, and the value of these properties too should be taken into account. The High Court did not accept this contention. Tt held that the deed was intended to transfer only the property mentioned in Schedule A and the buildings situated therein, and not the movable properties, ‘The High Court observed “The authorities constituted under the Act have to adjudge the duty chargeable on a decd as pre- sented by the executants. I¢ is not permissible for them to entbark upon an enquicy as (@ ‘what the intention of the patties was when executing the deed, and then to fix a duty oa such items of property which in their opinion the partics contemplated to transfer. The tact that the sale-deed contains recitals in respect of other transactions between the parties would not affect the duty, in case the deed which is sought to be registered docs not affect transfor of these properties.” ‘Therefore, the addition of the balance amount representing the price of the mathinery, vehicles etc. for purpose of calculating the duty, was uncalled for. 13,7. In earlier Madtas decisions, it bad béen held th atthe value of an instrument creat- ing a settlement of properties was the value set forth in the instrument, and not the market value of the property. In a later decision,? the Madras High Court reviewed its carlier cares, and said that ‘value’, unless (li term in any enactment suggests the contrary, most of course, mean the real vaiue, the real value of property of the nature of land and houses being ordinanly ‘and not suitably estimated by determining what the property would fetch, it sold in the opea market, In other words, value ordimarily meant ‘market value’ However, the High Court held that no machinery was set up in the Stamp Act for asoem taining the tue value of the property or the consideration, as the case may be, and ft would be clearly impracticable to cast the burden on the Registrar in each case 10 ascertain what the inte market value is, Since the Registrar is not erapowered to conduct an enquiry bimself as to the market value, the value must be set out in the document itself, 1, Somaiya Organics v. COR, Authority, ALR. 1972 All, 252 2. @ Reference LR. 7 Mas. 350. (@) Rerence LLR. § Mad. 453 (F.B) fe) Reference LL-R. 20 Mad. 27. 3 Tae dots! Secretary Boon of Revenue, Madras VR. Venkatarama, Ayyor, ALR. 1950 Mad. 738 (FB).1s 13.8. Although the Registrar cannot embark on an independent enquiry regarding the value Courses open to of property, yet he has power, under section 36 of the Stamp Act, to refuse registration if the document is not duly stamped, from which it would follow that he can require the person seeking registration to furnish the particulars required for the calculation of the duty payable. In other words, as the law stands,* two courses are open when a document is sought to be registered on an under-valuation. First of all, if the Registrar cither from his own informa- tion of otherwise, suspects that the valuation given is an under-valuation with intent to cheat the Government of the legitimate duty, he can ask for particulars from the party and if satisfied with its under-valuation, can refuse to register the document unless proper duty was paid. Secondly, in cases where the document gets registered and the information is subsequently received that the valuation shown is an under-valuation and that the legitimate stamp duty has ‘been intentionally evaded to defraud the State, it will be open to the Registrar to move for @ Prosecution under section 27, read with section 64, Stamp Act ‘Registrar. 13.9. The question that acises is whether it is necessary to introduce aay amendment in the Change not J4w to empower the registering officer to hold a formal inquiry on the lines on which some "o™mmendee. States bave done. On the one hand, it ean be argued that the scope for evasion of starap duty should be checked by giving such 9 power. On the other hand, it should be remembered that such an inguiry will prolong the proceedings for registration, and, while, in some cases, there ay be fruitful result, there might be many cases where the inquiry may result in nothing useful Having regard fo the fact that there may be complications resulting {rom a provision for Alaborate inquiries on the Tines of the Orissa amendment, we are not inclined to suggest such amendment of the Stamp Act, 13.10. We may note that in our Questionnaire a qnestion was included on the subject. Section 27 ‘The question was put in these terms— Fat and “ae cumstances feo: ‘The question has been raised whether the law should be amended to empower the register- fin” i to hold an inqniry “on fon whether iderati instrus 19” se fing officer to hold an inquiry “on the question whether the consideration stated in the instru: 12. ment was the true value? Have you any suggestion in this regard ?” ‘The replies reveal a sharp difference of view. The important replies may be thus summarised. (2) One State Government® was of the view that the registering officer should be so empowered, and that the stamp duty should be charged not on the considera- tion but on the value of the property. One High Court® suggested that an inquiry ‘of the nature contemplated may be authorised. (b) Some of the replies did not go so far. For example, one High Court Judge” was of the view that the decision of the registering officer in the proposed inquiry should not be final. One State Government* was opposed to giving any power to the registering officer to hold an inguiry. That Government would merely like section 27 te be amended to incorporate “in- cluding, where relevant. the market value of the subject-matter”. ‘One Union Territory Administration® suggested that in section 27, the words “as set forth in the instrument” should be deleted. Doty should be made chargeable oa the market value, and 1, Soe dn re- Verkatswani, ALR. 1953 Mad. at P. 942. 2. On this point seo Mahabransi, ALLR. 1960 Pat. 470 and Siraram, ALR. 1960 Pat, 210. 3, Para 13.3, Supra. 4. Q34. 5. S.No. 88. 6 SNo. 108. 1. $No, 99. 8, SINo. 122. 9. SINo. 100. Sa cany Teeth116 not on the value set forth in the instrument, For determining the value of the property, however, it would prefer rules to be made. ‘One Administration? would limit the powers of the registering officer to hold an inquiry regarding the consideration, but it suggested that the property should be subject to valuation by persons to be authorised by Government. (©) Two District Judges" were opposed to giving the Registrar the power. They were of the viow that if necessary the Registrar should report to the Collector if he feels that the true valuation has not been stated. They expressed an apprehension that an inquiry by the Registrar ‘would give chance to unhealthy practices and would delay the transaction and would, therefore, bbe undesirable. Registration should be made immediately, en inquiry may follow in due course where necessary. te Government* was opposed to any inquiry by the Registrar. One § Two Bar Coumeils'-* were strongly opposed to the suggested change, and s0 also is one Incorporated Law Society.” The Incorporated Law Society stated that @ procedure of the nature contemplated in the question would complicate, and thereby delay, the registration of the docu- ment. One of the Bar Councils* pointed out that if under-valuation is discovered which affects, the amount of stamp, section 64 can always be invoked. However, it has suggested that a section such as section 47A of the Andhra Pradesh Stamp Act could be incorporated. We may state that we find considerable weight in some of the objections put forth and are not inclined (© recommend any amendment. 13.11. So much as regatds section 27. According to section 28(1), where a property has been contracted! fo be sold or purchased for onc consideration (i.e. a consideration for the whole of the transaction), and is conveyed to the purchaser in separate parts by different instru~ ments, then the consideration for each part as decided by the parties has to be set forth in the instruments concerned respectively, and each of the said deeds is chargeable with ad valorem duty in respect of the distinct considerations mentioned therein.* For example, A contracts to sell to B his property consisting of a house and certain lands adjoining to the house for Rs, 10,000 and, in terms of the contract, transfers it by two sepa rate sale deeds in respect of the house and lands for Rs. 7,000 and Rs. 3,000 respectively. ‘A is lawfully permitted so convey his property by two distinct deeds, provided the stamp duty is paid on the deeds separately in proportion to the considerations which are distinetly set forth, In a sense, this is a qualification to the general rule in section 4 that, where several instru- ‘ments are employed for carrying on a transaction, then only the principal is chargeable 13.12. Further, according to section 28(2), where property contracted to be purchased for one consideration by two or more porsons jointly, or by any person for himself and others, ‘or wholly for others, is conveyed in parts by separate instruments (0 the persons by, ar, for, whom the same was purchased, then the conveyance of cach part of the property is chargeatle with ad valorem duty in respect of the distinct part of the ocnsideration to be set forth in each tostrament fp respect of the portion of property conveyed. This ako secms to constitute @ qualification to the general rate in section 4, 1. 8No, 119. 23. S.No. 0. 4 SNo. 66. $6, 8No. 74. SINo. 61 7. 8No. 8. 8.8, No, 6 9. Section 234)7 13.13. Then also, under sub-section (3) of section 28, where a person, having contracted for the purchase of any property but not having obtained a conveyance thereof, contracts to sell the same to any other person, and the property is, in consequence, conveyed to the sub- Purchaser (by the original owner). then the conveyance has to be charged with an ad valorem duty: in respect of the consideration which the middleman has received from the sub-purchaser In a Bombay case! under this sub-section, it was held that = purchaser from an official assignee in insolvency, who has not taken an actual conveyance, can also insist that the official assignee skould execute the couveyance ia favour of his sub-purchaser. There is no reason why the pur chaser from the official assignee should be deprived of the benefit of section 28(3) of the Stamp Act. 13.14. Then, under section 28(4), where an intermediary contracts to sell property or any part of it to any other person or persons, and the property is, in consequence, conveyed by the orignal owner to the ultimate purchaser or purchasers, by means of different instruments, then ‘each of the said deeds of conveyance will be chargeable with ad valorem duty on the basis of the consideration received by the intermediary in respect of the particular pact of the property conveyed. The araonnt or value of the original consideration, as agreed between the original ‘owner and: the intermediary, would be relevant only in respect of the conveyance of the residue, if any, in favour of the intermediary 28 a purchaser ; and such deed would be chargeable with ‘ad valorem duty on the basis of the excess, if any, of the original consideration over the aggregate of the considerations paid by the said sub-purchasers. But the duty on such last mentioned con- ‘veyance shall in no case be less than one rupee. 13.15, Finally, under sub-section (5), if a sub-purchascr takes an actual conveyance of the interest of the’ intermediary, and the conveyance has been duly stamped with ad-valorem duty in respect of the consideration paid by the sub-purchaser, then any conveyance in his favour of the same property will be chargeable with a duty on the basis of the consideration obtained by the original seller. Where the duty payable on this last mentioned conveyance exceeds five rupees, then the maximum duty chargeable thereon will be only five rupees. 13.16. There is mo conflict of decisions with regard to the section, The language may appear to be involved. But the section bears very little practical importance, and may be Jeft as it is, TT. Rahintaita Lonji Damaris. Offcial Assignee, AIR, 1935 bom. $40 (Besumont CJ. and Racgackar 3). 2A Mol Law/77—16 +APPENDIX STATE AMENDMENTS TO SECTION 27 In the U.P,,1 sub-section (2) has been added in section 27, the original section being num- bered as sub-section (1). ‘he new. sub-section is as follows :— “(2) In the case of instruments relating to immovable property chargeable wih an ad valorem duty on the value of the property, and not on the value set forth, the instruments shall fully and truly set forth the annual land revenue in the case of revenue-paying land, the annual rental or gross assets, if any, in the case of other immovable property, the local rates, munici- pal or other taxes, if any, 10 which such property may be subject, and any other particulars which may be prevetibed by rules made under this Act.” ‘The Orissa amendment has been already referred to. Then, there is a Madras amendment which adds market value in section 27, and substitutes that (est in article 33. ‘The validity of the Madras amendment was challenged before the Madras High Court, under articles 14 and 19(1)¢f) of the Constitution. on the ground that this becanfe a tax on pro- erty. The challenge failed, ‘The Act at issue was the Indian Stamp (Madras Amendment) Act, 1967, sections 8 and 10, which required the mention of the “market value” in an instrument and provided for its determination where 1 is suspected to be understood. The attack was based on the ground that the duty under the amendment would fall not on the instrument, but on the market value and market valie was uncertain. It would, therefore, be unreasonable. ‘The High Court, however, held that the starip daty oven under the amended Act, was a duty on an “instroment” as defined in the Stamp Act. The charge was on the instrument, and rot on the amount or consideration indicated in the document, which was but a measure of, or the basis for the computation of the extent of, liability to stamp duty and aot on the market value any more than on the consideration mentioned therein, The Court held that.® “csunsuthe object of the amending Act being to avoid large-scale evasion of stamp duty, it is not meant to be applied in a matter of fact fashion and in a haphazard way. Market value itself, as we already mentioned. is a changing factor and will depend on various circumstances and matters relevant to the consideration. No exactitude is, in the nature of things, possible. In working the Act, great caution should be taken in order that it may not work as an engine of oppression. Having regard to the object of the Act, we are inclined to think that normally the consideration stated os the market vase in a given instrument brought for registration should be taken to be correct unless circumstances exist which suggest frauduleat evasion. Even ia such a case, we trast that disputes will not be raised in petty sums. Uniess the difference is consider- able or sizable and it appears patent that the amount mentioned in the document is a gross ‘under-value no disputation as to Value is expected to be started.” ‘The Court held that the amendment had not shifted the chargeable event from an instra- ment to market value and the duty after the amending Act was still on the instrument, and that the amending Act was within the competence of the State Legislature. 1 UP. Act, 18 of 1938. E See also Rajasthan Act 16 of 1966. 5 Para f9.3 Supra 4 The Stole of EN, ¥. Chandhavetharam, (1973) 2. ML). $9 (D.B.)(M.L3. fsue 26 July, 1973). 5. The State of T'N. v. Chomaraseharam, A913) 2 MJ. &9 at 91 , 92 nsCHAPTER 14 LIABILITY AS REGARDS STAMP DUTY : SECTIONS 29-30 AND SECTION 30A (NEW) 14,1. We now come to an important question—who is lable to pay the duty ? The matter is Gealt with in the Act very indirectly or in a fragmentary manner. We shall first dispose of such provisions as now cxist, and then discuss the need for adding to them. 14.1A. Section 29 lays down that the onus of bearing the expenses of providing the proper stamp in the matter of particular instruments will, in the absence of an agreement to the contrary, ‘tie on the particular party or parties as specified therein. ‘The parties inter se may, of course, enter into an agreement to the effect that the expenses of stamp duty will be borne by a particular party. Thus, where a deed contemplated that the defendant should bear the costs incidental to the preparation of the deed of trust, the plaintiffs were held to be entitled to claim the stamp duty paid by them?. But disputes regarding payment of stamp duty on deeds of transfer which were not an essential part of the contract, cannot affect the completed agreement already arrived at, 14.2. Section 29 is applicable only where the document is not produced before the court. ‘Once the document has been produced before the court and tendered in evidence, the right of reéovery of duty is only by virtue? of section 44, and not tunder section 29. In order to entitle the plaintif to recover under that section (section 44), the amount of the duty must have been inchided in the costs at the time of passing the decree; otherwise, he has no right to institute any proceedings in rogard. thereto. 44.3. One point concerning instruments of partition may be noted. Section 29(g) provides that in ‘the absenee of any agreement to the contrary, the expense of providing the proper stamp is to be bore by the parties thereto, in proportion to their respective shares in the property com- prised therein, or, when the partition is made in execution of an order passed by a Revenue auitho- rity, dr Civil Court or arbitrator, then in such proportion as.such authority court, or arbitrators directs. In the old Act also, section 29(e) declared that the expenses of providing proper stamp, (in case of an instrument of partition) would be borne by the parties thereto in proportion to their res- pective’ shares in the property comprised in the instrument of partition. By the expression “parties thereto”, used in the section, must be understood not merely the patty or parties applying for parti- tion, but the whole co-sharers who must necessarily be parties in the partition proceedings equally bear the propel stamp duty; because the effect of partition proceedings is that the property theseby:Joses its identity as a previously undivided property, and there is nothing unreasonable in ‘making: sny instrament of partition chargeable with stamp duty pertaining to the value of the whoig, ¥en though the division is limited. This was the decision in an Allahabad case’. H4.4. Tn. the same case, Pearson J. observed: that in bis opinion, the entire property was ‘the subject matter of partition, and the stamp duty shoukl be calculated upon its value and not morely gin the value of the portion assigned to the applicant’ for partition: The portion assigned to the applicant could only be separated and allotted to him in severally by a process which dealt with the entire property and separated and ‘allotted the remainder of it to another party. 1 Dabaon and Barlow Lad.v. Bengal Spiing and Weaving Co, (1897) LLR. 71 Bom. 126, 136. 2. dedmarain Rare Lundiav, Suraimull Sagarmall, ALR. 1949 P.C. 211, 215,216 1 Panakola Rao V. Penegandis Numaraswami, AIR. 1937 Mad 763, 764. 4 Panakala Rav, Penugosda Kumars wami, ALR. 1937 Mad, 763. 5. Reference by Board of Revente (1880) ILL. 2 All. 684, 654, 656 (per Sturart, C1) 19 Introductory Seietite aA [ ze Instruments of, iontty Goverament Section 30—Obi- rion to give Frost ip certain Pena} piovisions 120 The opinion, he further said, appeared to be supported by the terms of clause (e) of section 29— now section 29(g—which provided that the stamp duty shall be payable, in the case of an instrument of partition, not by the applicant for partition but by the parties thereto, and the other co-sharers in the entire undivided property must be parties to the partition of it equally with the applicant for pavtiton,—in proportion to their respective shares in the property comprised therein, ‘and it cannot be denied that the partition comprises the entire undivided property.t-* 14.5. The position regarding cases where the Government agrees to pay the duty and the effect. ‘of that agreement on section 3, has been already considered. The above resume does not show any need for change in section 29. As regards instruments not mentioned in section 29, agreement usually governs the liability to bear expenses of stamps. Jn the absence of material regarding commercial usage, we recommend no change in the section. 14.6. A very special case of liability to pay duty is dealt with in the next section—section 30. Under that section, any person receiving any money exceeding twenty rupees in°amount, of any bill of exchange, cheque of promissory note for an amount exceeding twenty rupees. of receiving in satisfaction or part satisfaction of a debt any movable property exceeding twenty rupees in value, shali, on demand by the person paying ot delivering such money, bill, cheque note or porperty, yive a duly stamped receipt for the same Under the same section, any person receiving or taking eredit for any premium or coaside- ration for any renewal of any contract of fire-insurance, shall, within one month after receiving ot taking credit for such premium or consideration, give a duly stmped receipt for the same. 14,7. The ponal provisions relevant to scction 30 may be noted. Under section 65, if the person concerned refuscs or neglects to give the receipt when a demand has been made, as provided by section 30, he is punishable with fine which may extend to one hundred Yopees*, But the obligation to give a receipt arises under section 30 only when a demand is made. ‘Under section 62, whether a demand has been made or not, if a receipt has been given, it ‘must be a duly stamped one’. An unstamped receipt renders the giver punishable with a fine which may extend to five hundred rupees. ‘The offence under section 65 consists in not giving a properly stamped receipt: The offerioe under section 62(1}(6) consists in passing a receipt unstamped, whether one is demanded by the payer or not If a person required under section 30 to give a duly stamped receipt gives an unstamped receipt, (or a receipt not duly stamped), then he would be guilty of both the offences, i.e, under section 65 and under section 62.7 148. It should be noted that under section 30, it is only when a movable property exestding Rs. 20/- in value has been received in satisfaction of a debt (and a demand for receipt has been ‘made), that the question of granting a duly stamped receipt arises. The section has no applicetion where an immovable property exceeding Rs. 20/- in value is made over by a debtor to & creditor, in satistection of a pre-existing Tiabiity*. 14.9. Several kinds of receipts have, by the exemption in the Schedule or by’ notifation f ander section 9, been exempted from the obligation to stamp. A question which would arise is whether, even in such cases, the obligation to give a receipt imposed by section 30. survives. A 1. Reference By Board of Reverse, (1880) 1LR. 2 All 654664, 657 (per Pearson 3) 2. Also sce Reference ander Stamp Act, Section 46 (1892) LR. 15 Mad. 164 (FB). 3. See ascussion as to section 3, 4, Section 65(a), Stamp Act. S. Section 62(1), Stamp Act. 6. Girdhardas v- Emp, ATR. 1933 Bom. 462. 7. @) Girdsardesv. Emperor A. LR. (1935), Bom. 462 (6) Queen-Emprese v. Kheiur Mekan, (1900). LLR. 27 Cal, 324 8. Emperor. Suchdar, ATR. 1932 Nag. 172.ia similar question can arise where a receipt has been given, but is unstumped because the situation is one where the exemption applies. In an Allahabad case’, the document at issue was a receipt signed by the payee in duplicate, 00 the Post Office form, for money remitted by money order. No stamp was put on it, as the necessity for stamp was obviated by a notification, The person who remitted the money thereafter demanded from the payee a duly stamped receipt which should mention that the payment was re- ceived on account of a certain specified debt. The payee refused to do so, and Was presecuted and convicted under section 65. The High Court set aside the conviction, and held that since a proper receipt had been given (o the Post Office which was an agent of the remitter, the remitter could not demand a second reccipt. Further, section 30 did not require the person receivine to specify the particular purpose tor which money was paid. 14.10, To avoid the recurrence of such controversies, —which could arise from the present wide provision-—it is desirable that the position should be clarified. The object of the law of stamps is to ensure that duly is paid where payable. The obligation requiring receipt is intended ‘merely for such cases. We, therefore, recommend the addition of the following exception to section 30. “Exception Nothing in this ection shall apply 10 cases— {a) where the receipt, if given, would not require stamp, or (&) where a receipt has been given but does not require stamp”. 14.10A. We also recommend that the 2mount should be increased? to one hundred rupees, for reasons which we shall indicate under Article 53, 14.11. At this stage, it becomes aecessary to deal with one matter which is not adequately dealt with in the Act. The question whether a person from whose possession a document somes before a public officer—section 33—and who does not pay the duty and penalty—section 35—can be compulsorily ordered to pay it by the Collector—section 40(1)(b) and section 48—thas Ied 10 a difference of views as to the scope and ambit of sections 40 and 48. We shall revert to the matter when we consider section 48, but a few important points may be referred to, Section 48 provides that “all duties, penalties and other sums required to be paid under this Chapter may be recovered by the Collector by distress and sale of the movable property of the “person from whom the same are due”, ot by any other process for the time being in force for the recovery of the arrears of land-revenue. ‘As to the “person from whom the duty is due” within the meaning of section 48, the sec- tion itself is silent, and the answer has to be sought from other provisions. Unfortunately, the other provisions are also sketchy. As a result, there is considerable obseurity in this respect, and the obscurity arises primarily from the fact that, excepting in a very limited number of cases,* the Act does not give any specific and comprehensive guidance as t0 the person who is f0 be regarded as the one liable to pay stamp duty. 14,12. The very limited number of cases specificelly dealt with in this regard are contained in—(i) section 19, which relates to bills and notes drawn out of India, (ii) section 29, which, in the case of certain instruments, provides as to who shall bear the burden of proper stamp, and (iii) section 30, dealing with receips. 1 Bap. ¥. Bolorduend, (OTL. 34 All, 192 2 See discussion as to Article $3, inf, 43. Sections 19, 29 and 30 to amend section 30, Recommendation to. increase the ‘amount Section 30 AL (New)Recommendation Section 30 A. (New) 122 Section 29 is a somewhat general provision—though not exhaustive, And even that section does uot very clearly indicate whether it is 40 operate as between the parties, ox whether it is to ‘operate also between the State on the one hand, and the private party on the other hand, so as to be available for interpreting section 48. In view of the obscurity and uncertainty as to the inter-rclationship of section 29 and similar sections on the one hand, and section 48 on the other hand, we ate of the view that the matter shoukl be put beyond doubt, as it is neither in the interests of the State nor in the interests of the citizen that liability to bear the tax should be left in doubt 14,13, Our recommendation, in concrete terms,” is that the provisions of section 48 should bbe enforceable— (a) against persons who are liable by virtue of section 19, agreement or section 29 of section 30, as the case may be; and (b) where none of the above-mentioned sections applics, then against the person executing the document in question. It may be mentioned that most replies to our Question* have agreed with the need for an amendment on the above lines. 14.14, Im the light of the above discussion, we recommend the insertion of a new section ‘on the following lines :— : “30A. For the purposes of this Act, the person from whom duty on an instrument is due is— (a) the person liable under sections 19, 29 or 30, or under an agreement, or (b) where clause (a) does not apply, the exccutant of the instrument”, 1, See dicaion relating o section 4, fo. 21 Q. 56. (Conceming sections 40 and 48),CHAPTER 15 ADJUDICATION AS TO STAMPS—SECTIONS 31-32 15.1. The Act recngnises that it is not always easy for the citizen to determine the precise tntroductory. category in which a particular instrument falls. ‘To enable the citizen 10 seek official advice in the matter, it has considered it proper to make suitable provisions. 15.2, The principal provision---scetion 31—enables a person to seck the determination of Section 31 the Collector as to the proper stamp with which an instrument is chargeable. We need not go into its details, since there is no serious controversy on the section. There was, for some time, some uncertainty as to whether the Collector can impound an ‘instrument under section 33 when it is produced before him under section 31. The Supreme Court has now held, that when an executed instrument is submitted to the Collector under section 31 for adjudication as to the proper duty payable on the instrument, the Collector be- comes “functus officio” as soon as he determines the duty payable on the instrument, and has no authority to impound the insicument under section 33 if the duty so determined is not aid. ‘After careful consideration, we recommend that it should be accepted. The scheme of the section, including its provision for taking evidence, makes it desirable that the party present- ing be heard. It is only fair that the party preseuting be heard, so that the Collector may be able to decide with a full knowledge of the facts. The principal object of the law ought to be to encourage correct orders. Whether or not there is a lie, this would appear* to be a wise course, 15.3. In a Madras Case,® it was held that the Collector's determination (under section 31) 6,f0 stamp duty payable ou an instrument would be final and conclusive only in cases where the Collector followed up his order under section 31 by a relative endorsement on the instru- trent itself under section 32 to the effect that proper duty had been fully paid, or in cases where he had expressed the opinion that no duty was payable and made an endorsement to that effect on the instrument itself, Where, however, the Collector had not certified by endorsement on the instrument either in terms of section 32(1) or in terms of section 32(2), his adjudication as to stamp duty on the instrument brought before him under section 31 could not be a bat to an examination by the ether Authorities competent under the Act of the question of proper stamp duty. ‘4-4§.4. Under section 32, the Collector may make any endorsement of stamp duty on an instrument brought before him under section 31. The general view is that an endorsement made ‘90 an instrument by the Collector under section 32 is final, and cannot be questioned by a ‘vil court,—even if it was erroneous or was made out of time 15.5, We have received a suggestion’ that the Collector should specify the article of the ae Seitdule under which he calculates the duty, it having been said that this will facilitate regist = Gehl of the document. We accept the suggestion. Though the Collector's decision will not be Biiding’as to the nature of the instrument on the registering authority, it will be convenient if it thsete’ what the Collector decides. : = 1 Gorman of UP RA Khan, ATR 1961 SC. THT OSD TCR, 2 Seapatin of incocpocted Law Sosy, Cait, cael. 3. Que Conaling Ronit oa of Renee Maths V. Dr. K. Mankato Rat (1976)? M3278. 2.fo Megara ¥. Sagopa ATR. (90 Mad 01: GB Pn Powsuen iv. Frm Poros, ALR. 126 Sind 211 {© Tera V. Somai 1 nd. Cas 72 .Sogpton of the ncorporat Las Sosy of Caleta Gn rab to our Qvenicense) 13CHAPTER 16 INSTRUMENTS NOT DULY STAMPED—IMPOUNDING BY PUBLIC OFFICERS SECTIONS 33-34 16.1. Section 33 requires persons in charge of public offices to impound unstamped docu- Section 33. meois produced before them, or coming before them in the performance of public functions. ‘The object of the scction is to prevent the parties from withdrawing instruments producsd by them, when fio iound that stamp duty and penalty have to be paid on the instruments. The section reads— ocean “33, (1) Every person having by law or consent of parties authority to receive evi- Impounaiag dence, and every person in charge of a public office, except an officer of police, ae ‘before whom any instrument, chargeable, in his opinion, with duty, is produced ‘or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same. (2) For that purpose every such person shall examine every instrument so charge~ fable and so produced or coming before him, in order to ascertain whether it is stamped with a stamp of the value and description required by the law in fotee in India when such instroment was executed or first executed : Provided that— (2) nothing hercin contained shall be deemed to require any Magistrate or Judge of Criminal Court to examine or impound, if he does not think fit so to do, kay instrument coming before him in the course of any proceeding other than a pro- ceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Proce- dure, 1898; (b) in the case of a Judge of a High Court, the duty of examining and impounding any instrument under this section may be delegated to such officer as the Court appoints in this behalf. (3) For the purposes of this section, in cases of doubt— (a) the State Government rany determine what offices shall be deemed to be public offices ; and (b) the State Government may determine who shall be deemed to be persons in charge of public offices. names osu 162. Several questions have arisen on the. section. The first question is this: Is, it meogauery Taat sbosid be that the document of transfer which can be impounded under this section is valid in law 2 There vatid in kW. has been a difference of opinion between the Madras High Court! and the Andbra Pragiech; High ‘Court,? in regard to the question whether the document should be valid in law. A fall Beaoh of the Madras High Court" was dealing with an unattested and unregistered document dated 2-3-1948, one of the clauses of which was construed as creating a mortgage over the borrewer's floating assets etc. ¥ Gombe Bugis CoV, CG Rey taro: ALR, 1989 Mu 764, 766 pum 24 Cajuns C2, 2, Hazrami Cangaram V. Kamlabei ALR. 1968 A.P, 213 (FB) (S Judges), dra. 3. Ceamton Engineering Co. V C.C. Rev. Authortiy ALR. 1953 Mad. 764,766, para 11 (PB). 124125 In deciding the question whether this document was a mortgage decd. the full Bench held that the transfer provided in scetion 217) of the Stamp Act is a ‘transfer’ which is valid in law, and there can be no transfer by way mortgage unless the requirements of section 59 of the ‘Transfer of Property Act are satisfied. Where the specified immovable property is worth Rs. 100 or upwards, a document purporting fo be a mortgage deed of such properly requires attestation and registration. Where it is neither attested nor registered, it is not Hable to stamp duty. The Court pointed out that the documen: was neither attested nor registered, and the impounding utharity could not have enforced registration, and that, in any case, it could not cure the failure to aitest. which by iiself was enough to invalidate the document as an instrument of mortgage. It further held, that the document might be an “instrument”, but it was not instrumosit chargeable with duty as a “mortgage-deed” a5 defined in section 2(17) of the Stamp Act. The very difference between the definition of “instrument” in section 2(14) and the definition of “mortrage deed” in section 2(17) showed thet the transfer must be valid in Taw. To. make a document fable to stamp duty as @ mortgage, it is not enough if the document purports to effect a transfer. Tt must “transfer”. 163. The Andhra Pradesh High Court? has, however, disagreed withthe view of the Madras High Court, and held that there is no warrant for the importation of the requirements of either the Transfer of Property Act or the Registration Act, in construing documents or instruments ‘asder the Stamp Act, as the Stamp Act itself specifically defines the terms used therein. Further, to hold thet an instrament mast be a-valid one under law before it is fiable to stamp duty, will be to fenore the requirements of the definition and to make them ofiose. Tn that case, the docu tient was an unregistered mortgage deed. The High Court held that it was chargeable to duty. If the document was to require registration for its legal validity before it can be considered whether it is Hable to stamp duty or not, then the Registrar cannot impound it before registration though hho is alethorised to impound it under section 33 read with section 35 of the Stamp Act. If an Instrument is not duly stamped, then it cannot be registered or received in evidence, The ofiaitions in the Act and the terms of every sec‘ion of the Act indicate clearly thet an instrument nea not be valid in Jaw or meet the requirements of Jew as a valid document, hefore it is hergatle to stamp duty under the Act. 16.4. In our view, it is desirable to seltle this conflict. The Andhra view is, in our Recommendation opinion, more persuasive. and should be adopted. There is no reason why Tiability to stamp aty should depend on the validity of a document. That is an extraneous and irrelevant cons deration, A suitable Explanation incorporeting the Andhra Pradesh view should be inserced, ¥ and we recommend accordingly We may mention that the suggested amendment has been favoured by most of the replies to out Questionnaire? 16.5. ‘There is another matter pertaining to section 33, which has proved to be controversial. pow ot Ip a Fall Bench decision of the Madhya Pradesh High Court,* the majority were of the opinion to pay the deficit stamp duly. The minority, however, took a contrary view. According to the majority, the power to impound an instrument under fection 33(1) can be exercised only when tie instrument is produced before the registering. authorities in the performance of sheir femitions— tha: is, only co Jong, 25 the function is got perfornjed or completed and ngt afterwards. ‘As soba 2$ the registering officer registers a document presented to him for registration, the frmnctjon in the performance of which the document was produced before him is over; and he becomes ‘functus officio’, and! has no power under section 33 to impound the instrument. 1, Hazram Gangaramv, Kemiohal AUR. 1964 AP. 213 (EB) G Tadeo 2. Question 40, : : 3. Kamal Chandy, State of MP, ALR. 1986 M.P.20(ER) 22, 23, Para 3, 19,12, (FB) 24 M of Lawt?—17 that atter the registration of a document, the registering quthority has np power to hold an ‘2cgitiares enquiry regarding the valuc of the property covered by the fleed and to call upon the executant Under Seat 8 +f 3Gi Sesion 33.0) ception re. siding offcors Of police whe: her tobe extended () Meaning of “production”, 126 16.6. This was the majority view. But Golwalker J. dissented from the majority opinion. He observed! that the expression “functus officio’ means having fulfilled the function, having discharged the duty, having discharged the office, or accomplished the purpose and, therefore, cf no further force or authority. The sole function of the registering authority is to receive an instrument when duly presented as requited by the Registration Act, and to proceed to register the same in the manner provided therein. It is true that affer presentation of the instrument bofore the registering authority, it can examine the same anc see whether it is duly stamped ‘oF not, and, if it is not duly’stamped, defer its registration fll ic is impounded and either validated in that respect or certified as duly stamped by the authority concerned. This examination of the instrument, however, would not have been a part of its slatirory functions under the Regis- tration Act. Moreover, the insufficiency of stamp duty paid on an instrument is not one of the bars to registration provided in the Registration Act. An instrument aot duly stamped can be validly rogistered under the Registration Act, ‘The registration of the instrument is not affected by the infirmity in the matter of stamp duty, or by any other infirmity not ousting the jurisdiction of the registering authority. Thus, since the invalidity or unsufliciency in the matter of stamp duty on any instrument has no bearing one way or the other om the function c registering authority, it cannot be said that the registering authority, becomes “functus a soon as it registers the instrument. It is true that under rule 4 of the Rules framed under section 69 of the Registration Act, the registering authority shall examine the instrument with a view to seeing if it is duly stamped or not, bu: the very fact that the Act itscif Iays: down no such provision, and does not debar the registering authority from registering the instrument not duly stamped, rather supports the view that it is not by way of any function or part of function which the registering authority as such performs under the Registration Act. Moreover, there was no question of any authority being ‘functus officio’. 16.7. It is, with due respect to the minority view in the Madhya Pradesh case, suggested that this view is wrong. If it is not part of the registering officers’ legal duty to see that the document is duly stamped, then it would aot be proper for him to- impound the document in any case. ‘The minority view is not, therefore, logical. The point is that once the registering officer has registered the insteument, his function (of registration) is over, and that is all that the majority view emphasises. Practical considerations, also support the majority view. We think that the section should be amended to clarify the position. ‘We may mention that the suggested amendment has been favoured by most of the replies to our Questionnaire.* 16,8. Another point concems the exception in sub-section (1) for officers of police. The question may be considered whether this exception should not be extended also to other officers connected with the investigation of offences. Such extension appears to be desirable, because ‘under the present provision. impounding of the document is obligatory on the persons mentioned in the section, and the section leaves no option in this respect.* ‘The result is that a law enforce- ment officer—e.g., Customs Inspector—is also burdened with this duty, with the consegbence that his ordinary work of investigation might suffer, There is no reason why such officers should not be treated on the same footing as police officers, in this context. We recommend such amendment, which is favoured by the replies also.* 16.9. The word “produced” in the scction has also come up for consideration. Tt has been emphasised that it is not sufficient for the purposes of the section that the document should some- how be produced or come before a public officer. In order that this section may apply, it is essential thet it should be produced or come before the public officer’ in... the performance of his fumetions: and a mete production in compliance with an illegal demand. witt 1, Kamal Chand v. Stote of MP, ALR. 1966 MP. 2010 23. 2, Question at. 43, Pparelal v, Sukandram, ALR. 1926 Allahehad 478 4. Question, 49,127 ‘not confer authority on him to take action under the section.’ A registrar requiring the production of a document on the ground that it is not duly stamped, after it has been registered and delivered to the party concerned, cannot be said to be acting “in the performance of his functions.” A Pull Bench of the Lahore High Court® has held that a document ordered to be returned because it is not proved, can no longer be considered to be part of the judicial record, and cannot, therelore, properly come before the court again in the performance of its functions, and cannot be impounded. 16.10 The word ‘produced has a technical meaning, and means either produced to a summons, or produced voluntarily for some judicial purpose." A docurment which falls ac dentally or incidentally into a judge’s hand, cannot be said to be “produced”. In a Madras case,¢ it was reiterated that a mere handing over of a document, even if it is as a result of a summons from the court, cannot be said to be ‘production’. ‘There must be volition on the part of the person bringing it to the court, to use it for some purpose. These points of detail, however, do not call for an amendment of the section, as the position with zeference to the meaning of ‘produced! is fairly clean, 16.11. A verbal point may now be mentioned. ‘There is, in section 33(2), proviso (a), a reference to proceedings under Chapter 12 or Chapter 36 of the Code of Criminal Procedure, 1898, Chapter 12 of that Code related to disputes as to immovable property, and Chapter 36 related! to maintenance of wives and children. The Code of 1898 has now becn repealed and geenacted in the Code of 1974, It is, therefore, nocessary to substitute reference to the corresponding chaplers of the Code of 1974 in section 33(2), Proviso (2) accordingly we recommend that section 33(2), Proviso (a) should be amended 50 as to refer to Chapter 9 and sections 145 to 148 of the Code of 1974, which now deal with the two matters ntentioned above. 16.12. ‘There is an important question pertaining to soction 33(3). Under that sub- section, the State Government has the power to determine, in case of doubt. (2) what are public offices, and (b) who are deemed to be persons in charge of public offices. The power given to the State Government is not limited to State Government offices, and includes even Central Government offices. The question is whether this is proper. ‘The point will be appreciated if the history of the sub-sectidn is considered. As originally enacted in 1899, section 33(3) read as follows (3) For the purposes of this section, in cases of doubt. — (a) the Governor-Generatin-Council may determine what offices’ shall be deemed to be public offices; and (b) the local government may determine who shall be deémed to be persons in charge of public offices.” By the Adaptation Order of 1937, in clause (2), the words “the collecting government” vweie substituted, and in clause (b) also the words “the collecting government” were substituted. AX definition of “collecting government” was inserted by the same Adaptation Order, as section 2(12A). By the Adaptation Order of 1950, the words “the State Government” were substituted in place of the words “collective government” in both the clauses and the definition of “collecting government” omitted. The power is now vested in the State Government in both cases. 1 @ Thakr Das v. Emperor. ATR. 1952 Lah. 495 (SB) (8) Collector Ahmedabad v. Rombhon, AR. 1930 Bom, 392 EB. (©) Unam Chand y. Paraniand, AN-R. YOA2 Lah, 65. 2, Paran Chand v. Emperor, AAR. 1942. Lah 257 3, Pere Naragandas Nathuram, ALR. 1943 Nag. 97. 4S. Rangarah v, DAS, Remeshani ALR. 1953 Mad, 698, (Wi) Section 336) Pawer to declare bite offices.128 16.13. The question to be considered is whether the power to determine what offices shall bbe deemed to be public offices should be left to the State Government even in cases where the public office is connected with, or under the control of, the Central Government, Tt would appear that in 1937 all fusctions of the Central Government under or in relation to section 33 ‘were entrusted to provincial governments by the Government of India!. Apparently, in view of this delegation already made in 1937, it wes, in 1950, considered proper to substitute “State Government” in both the clauses. However, it must be stated that the provision as it now stands cannot escape criticism, because, in the case of an office having an apparent connection with the Central Govermmeat, it is anomalous that the State Government should determine whether it is or it is not.a “pebdic office”. If, for example, a question arises whether a person holding an election under a Central Act is or is not holding a public office, the question should be decided by the Centeal Govermasent and not by the State Government. In this connection, it may be aoted that in 1920, when claws (a) gave the power to.the Governor-General-in-Council, the question whether the office of a returning officer appointed for the purposes of an election to a kegistative body constitated under ‘the Government of India Act arose, the raling that it was not a public office within section 88(3) ‘was given by the Government of India.? If a similar question arises today, the decision will have to be given by the Slate Government,—which is not a very satisfactory position. Moreover, conflicting decisions may be given by different State Governments in respect of the same office 16.14 In view of what is stated above, we are of the view that the provision in clauses (a) and (b) should be reviséd so as to substitute the expression “appropriate govermmmem” for ” “State Government”. The expression “appropriate government” could, for this purpose, be 90 defined that it means the Central Govemment in relation to offices whose expenses are’ paid from. the Consolidated Fund of India, and the State Government in other cases. We may mention that the suggested amendment has been favoured by most of the replies to our Questionnaire.* 16,15, There has been a suggestion to smend the section to confer powerst on Stamp ‘Auditors for impounding documents of local authorities. We have considered it carefully, but are unable to accept it. Stamp Auditors of Corporations should exercise their functions before execution. It the Stamp Auditor is an officer of the Adminisiration, and if the daoument is “produced”, the case is covered by section 33. After impounding, he cam then take action undet section 38(2). The Corporation (if an executant), can also be prosecuted, in case there is found to be a deficiency and if the other conditions for penal liability are satisfied. ‘On the other hand, if the Stamp Auditor is a Corporation Officer, then the suggestion cannot be accepted, since the Corporation is itself @ party. It may also be stated that in doubtful cases, section 31 can be resorted to. 16,16. In the light of the above discussion, we recommend that section 33 should be revised as follows :— "33, (1) Every person having by law or consent of parties authority to receive evidence, and every person in charge of a public offct, except an officer of police or amy other fficer empowered by law to investigate offences, befote whom any instrument, chargeable, in hs ‘opinion, with duty, is produced of comes in the petformance of his fonctions, shall, if it aippeiats 1 hhim that such instrument is not duly stamped,’ iinpound the same, wheiher or not the instédhent is valid in tow. (2) For that purpose every such person shall examine every instrument so eharbabie and so produced or coming before him, in order to ascertain wiether ic is stamped with a , Goveromeat”of Tad, Fiance Deparamat (zn Revenus) Notiieaon No. ded Tata Noveaier, 1957 2 Government of India, Finance Department Notification No. 2962 F dated 19th November, 1920. 3. Ovestion 43. 4. Suggestion of the Delhi Administration.129 stamp of the value and description required by the law in force when such instrument was executed or first executed : Provided thet-— - (a) nothing herein contained shall be deemed to requite any Magistrate or Judge of & Criminal Coust to examine or impount, if he docs not think fit so to do, any instrument coming before him in the course of any proceeding other than a proceeding under Chapter IX or sections 145 10 148 of the Code of Criminal Procedure, 1973 5 (b) in the case of a Judge of a High Court, the duty of examining and impounding. any-instrument under this section may be delegated to such officer as the Court appoints in.this behalf ; (©) nothing herein contained shall apply to any registering officer after registration. (2) For the purposes of this scetion, in cases of doubt, che appropriate Government may setermine— (a) what offices shail be deemed to be public offices ; and (3) who shall be deemed to be persons in charge of public offices. Explaniation—tn this section, “appropriate Government” means— © in relation to offices the expenses whereof are paid oul of the Consolidated Fund of india, the Central Government, and Gi) in relation 10 other offices, the State Government.” 16.17. Section 34 contains a special provision as to unstemped receipts in the following terms : “Where any receipt chargeable with a duty not exceeding ten naya paise is tendered to or ‘product before any officer unstamped in the course of the audit of any public account such ‘oftter may in his discretion, instead of impounding the instrument, require a duly stamped reecipt to be substituted therefor”, 7 ‘The section provides an alternative to impounding, The statement of objects and reasons said : “This section fas been added, because under the present law (Act of 1879) an audit officer of public accounts, before whom an unstamped receipt is produced, must impund the instrument, and has 10 power to require the substitution of a duly stamped receipt”. ‘Tims, teceipts' chargcable with duty® are governed by this section. The section nceds no change. ‘There is hardly any case-law on the section. Thetement of Objects and Reasons 09 tbe 1879 Bil 2, Section 26) section 2 (23) and article $3.Introductory. Section 35. Proviso (a) CHAPTER 17 ACTION UPON INSTRUMENTS NOT DULY STAMPRD—SECTIONS 35 TO 37 17.1. With refecence {o “Instruments not duly stamped” we have discussed one set of provisions. With section 35 begins another important group of provisions also concerned with such instruments, ‘They regulate the use of such instruments in evidence or “acting upon” them by public officers. 17.2, The princinpal provision is contained in section 35, prohibiting the admission in evidence of an unstamped document, as also “acting” on such document or its authentication or registration, where the document is required by law to be stamped and is not stamped or is not sufficiently stamped. This rigid provision is subject to certain exceptions, contained in the proviso to the section. 17.2A. The proviso has several clauses but the most important is clause (a), which reads— “(a) any such instrument not being an instrument chargeable with a duty not exceed ing ten naya paise only, or a bill of exchange or promissory note, shall, subject to all just exceptions, be admitted in evidence on payment “of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duiy or deficient portion thereof exceeds five rupees, of a sum cqual to ten times such duty ‘or portion.” 17.3. Thus, while the payment of penalty under the proviso relieves a document from the prohibition imposed by the main paragraph, the relaxation under the proviso is aot applicable to certain instruments. The basic question to be considered is whether. in the case of those instruments, there is need to continue the present rigid provision. The instruments, in question are G) ony instrument chargeable with a duty not exceeding ten naya paise only (but not including a receipt) # Gi) bill of exchange or promissory note. 17.4, Taking up, first, the instrumentd chargeable with duty not exceeding 10 paise, the possible reason for the rigid altitude adopted by the legislature in respect of these instruments ‘could be that the duty is so negligible that an infraction of the law is considered’ as deserving ‘of no sympathy. While there may be some force in this reasoning, we must also note that "in practice the figid provision leads to hardship. It excludes from evidence documents felevant to the case, or even material to the case, merely on cousiderations of revenue. The: executant of the document might have failed 10 affix the stamp because of igtorance of law, misconstric- tion of the relevant provision of the Stamp Act, difficulty in purchasing stamp, and s0 on—~ all factors which do not show an intent to evade the law. Moreover, it is one thing to. levy @ penalty, and another to exclude a document from evidence by a categorical provision admitting of no relaxation. 175, It should also be pointed out that the legislature has already recognised the hardship in the case of receipts, aud allowed them to be admitted in evidence,? in certain limited circums- tances, even though they were chargeable? with a duty of ten palse. T, As to receipts, ace section 35, proviso () 2, Section 35, Proviso (®). 53, Article 53 (before amendment of 1976). 130131 17.6. In our view, it is desirable that the exception in regard to documents chargeable. vi with a duty not exceeding 10 naya paise should be removed from section 35, proviso, clause (a) We had included a specific question on the subject, and we may add that most replies to our Questionnaire favour such an amendment. 17.7. In fact, Tong befere we issued our Questionnaire, several suggestions were made for Fatt reducing the stringency of section 35. Tt was, for exaraple, stated in one suggestion that the Prohibition as regards instruments chargeable with a duty of one anna or half an anna only or a bill of exchange or 2 promissory note had resulted in great hardship to people in India, who are toially unacquainted with the technicalities of the Law Merchant in England. tt was stated that the stamp duty payable on other documents, which are made admissible on payment of penalty under this Act, is many times greater than the stamp duty on the promissory notes and other documents referred to in section 35. Also, the number of documents of the former class is on a par with, if not greater than, that of pronotes. Yet, when the former class of documents is made admissible on payment of penalty, the latter arc totally prohibited from admission in evidence even on payment of any amount as penalty. The argumient that it is on effective check on evasion of stamp duty equally applies to the latter class of documents as well. Thus, this distinction does not appear to be fair. Whatever might be the state of circumstances in the commercial world at the time of passing of the Act, it can confidently be said that, with the advent of banking facilities, pronotes, as mews of negotiation, have become otiose and scarce in the commercial circks while they have become ‘the common instrument of transaction amongst ignorant. villagers. It was, therefore, suggested that proviso (a) to section 5 should be amended by deleting the words “not being an instru- ‘ment chargeable with a duty of one anna or balf an anna only, or a bill of exchange or promissory note.”* ‘Tt was stated in another suggestion® that the proviso (a) to section 35 should be suitably amended for admitting promissory notes in evidence on payment of the proper stamp duty and penalty, sintce experionce had shown that in several geauine cases in which there was not the least intention to evade duty, the unstamped promissory notes had been excluded from evidence much to the hardship of the party. ‘There was yet another suggestion to the effect that the exception for bills and pronotes should be deleted’. A similar suggestion’ was made by a judicial officer that section 35, which ‘affeeis negotiable instruments, should be amended in such a way that a suit on an unstamped promissory note can also lic on payment of due penalty. 17.8, In view of what is stated above, we recommend that the exception regarding insru- Recommendation ments chargeable upto 10 paise should be deleted from section 35, proviso (a) eo or 17.8A. We now discuss that part of proviso (a) to section 35 which excludes promissory seein ” 35 and notes apd bills of exchange. This had a counterpart in section 34 of the Stamp Act, 1879 pronisery note (bat not in the earlier laws relating to stamp duties). ‘The provision seems to have been bor- Shay . rowed from the English Act. In England,* a promissory note or bill of exchange cannot be ued upon, it unstamped. In 1961, the Stamp duty on these instruments was simplified in England,’ but the above position remains unaltered. 17.9. English text books do not give any guidance as to why promissory-notes and bills of exchange have been selected for this harsh treatment. One can think of = possible reason, om QuestSanae Eavier sugges: Taw 2 File No. F.34)STLCA (egnrding Revision of Stamp Act, Pages No. 7879 (Law Department, Govt, ‘of Andhra Prades). 3. File No. F. 38) /57-L.C.( Vol. f, $.No. 37, (Law Departimont, Govecnment of Orissa). 4. Sub-Registear, P.O. Sikandra Road, Aligarh District (File No. F. 34/57-L.. 1, Vol. I, Page 22) ‘5. Shri HEB, Vaishoay, Asstt, Judge, Porbandar (File No. F. 3(4)/57 L.C. I, Vol. Page 45). 6 Section 33 (1, Stamp Act, 1891 (Eng), Which overrides, ction 144) of the Same Act. 7, See discussion relating to articles 13 and 49.Recomraendetion. 132 ramely, that these instruments are negotiable and pass quickly from hand to hand, thereby facilitating a successively large number of transactions. Assuming that this argument is sound, should the law go to the extent of fovally barring the reception in evidence of the instruments ? ‘After all, the law relating to stamp duties is concerned with revenue. The object of section 35 js to ensure effective realisation of the duty. ‘The sanction need not be made drastic than js necessary. The object of rvalising the duty can be equally effectively achieved by levying a penalty. The hardship caused to the citizen by non-reception of the sastrument is entirely ‘unnecessary. 17.10. ‘There is sufficient justifcation for modifying this part of section 35 also. There have been suggestions also to modify the regour of section 35, in relation to bills and pro-notes, and the matter requires 10 be considered. 17.11. Even if pro-notes and bills can be justifiably picked out for a specially rigid provision, one should also weigh the inconvenience caused to small traders as well-as to nationalised banks who advance money against pro-notes. Another aspect of the matter, which may be relevant in this connection, is that total exeia- sion from evidence encourages dishonest defences. With the main security for the debt rendered nseless, the debtor is induced to deny the debt itself. 17.12. We may add that most repliest to ont Questionnaire favour a change on the Tines discussed above. 17.13. A few reported cases illustrating the practical working of this part of the segtion show, that (i) the present provision has been criticised as causing undue hardship, and (ii) to ‘void undue hardship, courts are sometimes driven to construing the docuthent as not falling Within the category of “pronote”, and (iti) in many cases it is always a matter of difficulty to decide whether a document is or is not a proaote. 17.14. In a Madras case,? for example, Schwabe CJ. and Ramessm J. held: “The ‘question is whether or not (a particular, doqument) is an acknowledgement within the defiaition ‘of ‘acknowledgement’ in the Stamp Act, far i it is, it has to be staraped, and if it is not stamped, ft cannot be admitied in evidence and in such a case the legislature bas thought t to impese ‘what to my mind is an appalling penatty of the plaintiff losing his claim altogether, because there is no penalty provided by the payment of which to Government, the document can be admitted. Perhaps, in view of this provision, the draftsman of the Schedule has so worded it that it has left many loopholes, and given rise to a conflict of judicial opinion when it comes to interpretation. The-words are ‘acknowledgement of a debt, exceeding Rs. 20 ia amount or value, ‘written or signed by or on bebalf of a debtor in order to supply evidence of such debt’, The first question that arises is whether any: particular document is given to supply evidence of the debt. 17.15, In another Madras case,* the question was whether 2 person who had last many fon 8 promissory note can sue ¢0 recover’ the debt apart from the mole, when Ske pote. inadmissible in evidence, owing to a defect io the stamping. Counsel for the cogiton uatguad that the principle which applied in England—that the credit is a diflerent cause of action from the promissory rote—-should be held applicable in India, and that section 91 of the Eyldence- ‘Act was no bar to the action on the loan. As to this, the Chief Justice observed,* “Phere js no statutory provision in England. as section 91 of the Indian Evidence Act here.. In Englasd, they strain the common law rule of evidence to get over the stamp law in cases of tuatstip, ‘You cannot do that in India”. You cannot do het Oo LO wa 7 Stoned Merlidhar «, Anata Lal ALR. 1924 Mad. 382, 353 5 poumal Cheriar v. Kemaksh! Anal, (LR, (1938) Mad 933; ALR. 1938 Mad 78S (F.B.) Sem Chettiar ¥. Kama kshi Arima, L1-R. (1938) Mad 933, 937; ALR. 1938 Mad. 785 (FB).133 To the judgment, he also obsorved :% +s-The Engfish roles of evidence are not statuiory, but Judge-suade, and is the second place, the tendency in England hes always been to ignore, as far 5 possible, stamp objections, as iS pointed out in Taylor on Evidence’. In India, the law is statutory and the courts are given no Hstitude in matters of this nature”. Stodard J. i his dissenting judgment, said :—* “To me, it appears that when a man gives another s promissory note in satisfaction of 4 debt or for some other consideration, he gives at the same time a warranty that the note is a good and enforceable instrument. {If the note is bad for want ‘of a proper stamp, it is difficult to see how it can operate as a discharge of the debt any more than the giving of a couaterfct currency note could so ‘operate. . val am not able 10 subscribe to the view that because ‘the consideration is recited in the instrament, no evidence can be given of it except the instrumem itself, ‘The consideration, that is to say, the loan for which the promissory note is given, is the sabject matter of the contract and not a term of the contract within the meaning of section 91 of the Indian Evidence Act. fn the matter of the Joan the leader consents 10 it only on condition chat the borrower gives him a negotiable instrument in the shape of « promissory tote containing ar recording more, though of course they may state the consideration, Receipts and agreements generally are rtor inteaded to be negoticble, and serious embarrassment would be caused in coromerce if the negotiable net were cast 160 wide. This document plainly is a receipt for money containing the terms on which it is to be repaid .... Being primarily a rooeipt even if coupled with a promise to pay His mor a promissory note” 17.17. There is another Privy Council case* selevant 10 the point. In w suit bused on a shfa ox an agreement of sale, the meaning of which was obscure, the claim was supported by copies of twa documents, whicit were as follows :— “Received from you this day. ...-.. a chogue for R52 .ceceeecees The ‘amount would be repaid with interest thercon at the rate of ........ per cent. Tite ten months... ‘The principal: amount will be paid with interest after ten montbs from this date”, “The defendants pleaded that tht documents were promissory notes, and, not being stamped, they were inadmissible in evidence. i was held, following an cartier Privy Council case,* that these documents wete “clearly never intended to he negotistte instruments”,® and were not promissory notes ard wore not, thefefore, inadmissible in evidence for want of a stamp. YTATA, It appears tha: the Privy Council, when refecring to the ‘intention’ that she docu- vents Were not mizant to be promissory doles, seams to be doing so in order to avoid the ben imposed by settion 35. 17.18. fn a Bombay case,’ Beaman J, said that “effect should be given to the marine wt magis valeat quam perent (it is better for a thing to have effect than to be made. void),* ia any difficulty under the Stamp Act. so that where there is « reasonable doubt whether & paper is subjece to stamp at al, the courts should decide strictly against the Exchequer and heneficiently 17 Boruraad Gieiler 0 Ramalait Arenal, UL R, (938) Mad 935, 946; ALR. 1958 Mad. 765 (0.8) 2 Taylor on Evidence, Vol. 1, Page 276 (12th oda) 3. Perumal Chettiar v. Kamasshi Aramal, LL-R. (1938) Mad. 923, 965, 967: ALR, 1938 Nad. 785 “4, Korum Chand v. Firm Man Mir Abad, ALR. 1938 P.C. 121, 128 5. Mé Akbar Khon v. Atta Singh, ALR, 1936 BC. 171 6 Emphasis supplied. 2 Sethna ¥, Mirza Mabomed Straji,(9907) 9 Bom, Law Reporter 1034 omar, A Cong (2m Pleo Ath Bt though the wor es” ao wend here aero wich aay “thins F " 24M of Law7?—18efon of reset Recommendation arto promotes Daly suraped 134 in favour of the subject. The principle loses force where the question is not so whether a paper is liable to stamp, as whether it is liable to stamp in one character, or another, and it ‘has no application at all, where the words of the statute directly cover the case”, 17.19, Im that case, it was held that, under the Stamp Act, 1899, a promissory note, unless it is payable to order or bearer, is to be deemed to be 2 bond, if attested, 17.20. The present law, in cur view, encourages dishonesty, and causes hardship. More- over, the proposed amendment will help the Government revenue, as bas been pointed out by one State Goverament.* 17.21, Since the hardship to the lender caused under section 35 of the Stamp Act has been noted by several persons, it is high time that this section was amended so as to “advance substantial justice”, which under the present section the courts are unable to do,* however much they may like, We, therefore, recommend that pronotes and bills also should be included within proviso (a) to section 35. If this recommendation is accepted, it will not be necessary to carry out our recommend: ation to limit the bar relating to pronotes to pronotes as defined in the Negotiable Instruments Act? 17.22. A point relating to “Letters of credit” has been discussed under an earlier section. ‘The recommendation made there was as follows :— G) the mention of “letter of credit” should be removed from the definition of “bill of exchange payable on demand”, and (i) in section 35, “letter of credit" should be expressly mentioned. ‘The second amendment, which concerns section 35, may be carried out, if our recommenda tions to delete bills of exchange from section 35, Proviso (a) is not accepted. 17.23. Under section 35, proviso, a deficiency in the amount of the duty can be rectified. But the situation where there is no deficiency in the amount of the duty is not specificaily covered by the proviso, though it would appear that the language of the proviso to section 35 is wide enough to cover such cases. 17.24. In the definition of the expression “duly stamped”, a number of ingredients are implied, such as, provisions of the Act relating to description of the stamp, mode of afixing stamp and the like. As we have pointed out while discussing the definition of that expression, a difficulty may arise where the amount of the siamp satisfies the law, but, in other respects, the instrument is not “duly stomped” as explained above. A& this is a reciring situation, it appears to be desirable to add in section 35, proviso (a), an Explanation on ‘the point. We recommend that section 35, proviso (a), should be amended for the purpose, by adding such an explanation. We may note that most replies to our Questionnaire favour it 17.25. As regards the case of use of a stamp of improper description, it is covered separately. under section 37, which allows the defect to be rectified by applying to the Collector 17.26. Where the full duty has been paid but irregularly stamped, no penalty except Re. 1, Where part duty is paid but irregularly: stamped, then also Re. | Though this concerns rate, to avoid undue hardship, it is necessary, Mere iteegularity should aot be visited with a severe penalty. 1. Government of Maharashira’s reply tothe Law Goramitsion Questionnaire (S. No. 88) 2 See Penanal v. Kamakshi Ariel, LL-R. (1938)Mad, 933, 946 (FB) (Varadacharias, 1). 53. See discussion as to section 2 “Promissory note”. 4 See dcasion as to section 23) “bill of exchange payable on demand”: (spr). 5, See discussion as to section 2(11) “daly stamped". 6.945135 -7.27, If the above line of reasoning is accepted, clause (a) of the proviso to section Recommendation 35 should be revised on the following lines : (a) any such instrament... ......0.-shall, subject to all just exceptions, be admitted in evidence, on payment of : (W the duty with which the same is chargeable, or, ia the case of an instrument insufficiently stamped, of the amount required to make up such duty, and Gi) a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such uly or portion. Explanation —Where av instrument bears stamp of a certain amount but is not other- wise duly stamped, then for the purposes of this proviso, the instrument shall be deemed to be duly stamped 10 the amount of the stamp which it bears if a penalty of one rupee is paid into court.” 17.28, Section 35, Stamp Act, read with section 91 of the Evidence Act, excludes both Seonndary evie the original instrument and secondary evidence of the contents of the instrument, if it is anstamped or insufficiently stamped.’ 17.29. Lord Wetson stated in Raja of Bobbiti v, Inugaitti China Sitaramaswami Garu? that, under the terms of section 34 of the Indian Stamp Act of 1879, as the copy could not be stamped, the original having becn lost, it could not be admitted in evidence, This decision was followed by the Madras High Court? in a case where the facts were these Before the trial commenced, the plaintiff produced an unstamped document purporting to support his claim to certain fands, Later on, a mob invaded the Court, and set fire to it in Which the record of the case was destroyed, among other things. When the trial commenced, ‘he plaintiff sought to put in a copy of the document and paid the penalty into Court ; Te as held that the copy of the document was not admissible in evidence, even on payment ofthe penalty. ‘The fact that the original document was destroyed by the action of the mob put the plaintiff in no better position. 17.30, In another Madras case,* it was held that where a deed of partition is inadmissible fap evidence for want of registration, the partition cannot be proved apart from the deed. The Towel tourt had. held in this case that the partition could be proved by evidence apart from the deed which was not registered. On appeal, the Madras High Court (following an earlier cp held that where a deed of partition is inadmissible by reason of the fact that it had not been registered, the court can only regard the property as being still belonging to the joint family. 17.31. These cases illustrate the hardship caused by the present position. The benefit of ‘being allowed to prove the document on penalty should be extended to copies also. 1. (@) Thali eebi v, Trumuloippa LL. 30 Mad. 386. (©) Lachmarediy v. Sham Raw, (1966) 2 An, WR. 251. (©) Darodar Jagarnath . Amaram, LLR. 12 Bom. #43. (@) Ming Po Hioo v. Ma Ma Gye, ATR. 1927 Rang. 108. (@ Lada Ram V. Hari Chand, A.LR, 1938 Lab. 90, 92. ©) Chanda Singh v- Amritsar Bank Co., ALR 1922 Lah. 301, (@) Shanda Sieg. Harmar Singh ALR. 1926 Lah, 415, 416. (i) Nelam Ramayya v. Nolam Acharama, (1942) 2. M.LJ. 164 ; LLL, (1945) Mad, 160 (FB). ( Subbu Noide v, Varadarajea Noida, (1947) 1 MLL. 90. 2 Raja of Bobbil v Ineganti China Sitaramacwami Gare, (1899)LLR. 23 Mad49 (PC). 3. Chidambaram v. Maypappan, ALR. 1946 Mad 298, © Ramayya v. Achamra, [L-R. (1945) Mad, 160 (FB) (case law reviewed). 5. Veera Reghava Rao V. Gopalecao, (1941) 2 ML. 707 Patanial Sas, 1).‘Recommendation toadmit fvidenes. Recommendation Omission oF the word “nays ‘Section 35 Power 0 require. security Proporitions !aid down incase law 136 17.32. The present position leads to the adoption of various tricks and devices by, litigants. If the plaintiff can establish his case without proof of a written contract, he succeeds, And that: is what he tries to do. 17.33. The defendant on the other hand, exploits the legal prohibition by suppressing the document and by stating that it was unstamped." 17.34, Even an oral admission of the contents of the document by the defendant? is not admissible,’ if the instrument is not stamped, unless* the admission is made for the purposes of the proceedings.* In our view, this lacuna should be reetified. 17.35. While on section 35, we may state that the word “naya” before the word “paisa” should now be omitted, having regard to current usage. 17.36. 1t has been suggested® with reference 10 section 35 that provision should be made to require deposit. It will, however, increase work, and we are not inclined to accept it. 17,37. Under section 36, where an instrument has been admitted in evidence, such admis- sion shall not, except as provided in section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped. 17.38. With reference (0 this section, couris have laid down a few propositions, of which the following are noteworthy :—— (1) When a court passes an order that the document does not require any stamp or is duly stamped, the order should be treated as final." (2) ‘The section is mandatory. Once a document is admitted in evidence, rightly oc wrongly, whether with or without objection from any party, it is not permissible to the court, whether it is a Court of appeal, revision or trial court, to reject it on the ground that it has not. boom duly slamped.*-2° Stamp matters are mo concern of the parties. and if, notwithstanding an objection, the trial Court admits the document, the matter stops there, and the Court cannot subsequently order the deficiency to be made up and penalty paid or, on failure to do so, reject that document.** (3) The section is not limited in its application to cases in which an instrument not duly stamped has been admitted in evidence by the trial court. The admission in evidence of an insteument by an appellate court is equally a bar to a subsequen: objection to its admissibilty.1* (4) The words “admitted in evidence” refer to the act of letting the document in as of the evidence, either as a result of judicial determination of the question whether it is'admiee for want éf stamp, or because no objection was taken to its admissibility.19-+* Sa a a Eaten LEWES mcrae OH Be i Mal «Spans aS 5 seat a 1 eee Ce ee Le eer ean umn. 2a Meese eae ae Te ce a a4 Sn ore ey 1 i ie HS Pn Se ert ae cet! a 1 ete aa, wo a137 ‘Once the Court, rightly or wrongly, decides to admit a document in evidence, then, so far as the parties are concerned, the matter is closed, and the admission cannot be called in question at any stage of the suit or proceeding on the ground that the instrument had not been daly stamped. (5) What section 36 prohibits is the calling in question at any stage of the admission of 4 document on the ground of its no: being duly stamped.*-* 17,39. In a Rajasthan case,* there was a difference of opinion about the interpretation of the words “admitted in evidence". The majority were of the view that a document can be said to be admitted in evidence only when it is formally proved and tendered in evidence. A ‘mere finding that the document is admissible does not bring section 36 into operation. ‘The High Court confirmed the view expressed on this point in an earlier Rajasthan case. 17.39A. The minority (Bhargava J.), however, took the view that once the duty is paid and document regarded as admissible section 36 should apply. 17.40. We are of the opinion that the majority view in the Rajasthan case is correct, and that there is no need to amend the section. 1741. Section 37 empowers the Stale Government to make rules providing that where section | 37— ‘an instrament bears a stamp of sufficient amount but of improper description, the instrament Introductory. may, on payment of the duty with which the same is chargeable, be certified to be duly Stamped; may instrument so certified shall then be deemed to have been duly stamped as from the datc of its execution. The object of the section is to enable instruments bearing stamp ‘f improper description to be validated without payment of penaity, the assumption being that the party has not been guilty of an attempt to defraud government revenue. ‘The validation is done by the Collector under the Rules. ‘The section does not mention the authority that can validate the instrument, and leaves it to the rales. 17.42. We ae of the view that the concession should be mandatory, and that no duly. us not to be should be chargeable. We may mention that many replies* to our questionnaire agree with vena this view. os 17.43. Several points require discussion, with reference to the section 37. First, on the afeaning of word question whether the words “stamp of improper description” include alto stamps appropriate “sttmap! of “a to a purpose outside the Stamp Act (such as, a court foe stamp or a postage stamp), there was PEP%, — déserip- meeleyply sooue obscurity. The Allahabad High Court, in a case’ in which a postage stamp was ‘wed, held that these words arc noi to be interpreted as including a description of stamp appro- priate for purposes outside the Stamp Act, aad must be confined to a stamp which is used for the purpose of denoting the Stamp duty chargeable on an. instrument. ‘Thus, according to the ‘Allahabad High Court, a postage stamp used for an acknowledgement canaot amount to, & “stamp of improper description”, but should be regarded as not a stamp at all within the mean- ingvof the Act and the rules. Tn the judgment, there were observations that even a court-fee stamp would not fell within the section. 17.44, But this view, at least as regards courtfee stanjps, must be taken as overruled by the Privy Council,* which has held that it is not cocrect 10 say that the section has no reference to any. stamp except a revenue stamp pure and simple. The Privy Council case involved & revenue stamp surcharged “court fee", and this was held to be a stamp of improper description 1. Ghat Paira v. Brahma Taha! AUR. 1962 Orisa 35. 2 Kttathara Worrir «. Rochimarayan Menon ALR. 1962, Ker. 265 3. Stobhadltv. Varolokaskmi, A.LR. 1962, AP. 398, 4 Nenga¥. Diannial, ALR. 1962 Raj. 68-78, para 36 5, Godan Singh v. Suver Lal AIR. 1988. Raj 156 6 O48. 7. Reference under the Stamp Act (1901) LL.K. 23 All 213 (Postage stamp) 8. Ma Pa May v. S.R.MMA, Chettiar Fr, ALR. 1929 P.C. 279,282.Ameodeeat nee. Gedo cover another “stamp. EMect of certi- feat Amendment need. ded 10 overnice section "33, No, naedto-cover cases of stamps of ‘amount. Recommendation spi revuescton 138 within the meaning of che section. Even a posial, forest or telegraph stamp, whidh is. totaly outside the purpose of the Stamp Act, has been regarded as covered by the section.? 17.45. In our opinion it woukd be useful to amend the section, so as to incorporate the Wider judicial construction of the phrase “stamp of improper description”, We may note that many replies to our Questionnaire favour such an amendment.? 17.46, The second point concerns the relationship of section 37 with section 35. In an Andhra Pradesh case,> a promissory note on an impressed stamp, though certified by the Collector under section 37, was nevertheless held to be outside the scope of section 37. The reason given was, that the exception to the proviso to section 35 was a bar to the admissibility of the note, and that the certificate under section 37 could not prevail against the specific provisions of section 35, proviso. With great respect, section 37 does not necessitate such narrow view of the scope of the section. If the certificate cures the defect in stamp, it should be taken as curing it for all purposes. 17.47. We are of the view that having regard to the beneficial object of section 37, it should be made clear that it will override the proviso to section 35. Such a course fhas been Favoured* by most of the replies to our Questionnaire 17.48. We note that section 37 is confined to instrumenis bearing sufficient stamp. Should it be extended to instruments bearing stamp of wrong description but of lesser amount than that chargeable ? ‘We have considered this aspect, but are not inclined to recommend » change. 17.48A. In the light of the above discussion we recommend the following re-draft :— Revised section 37 37. (1) Where ........ am instrument bears a stamp of sufficient amount but of im- proper description, ike instrument shall, without payment again of the duty with which the same is chargeable be cettified to be duly stamped, subject 10 such rules as the State Geter ment may make as 10 the procedure for the grant of such certificates. (2) Any instrument so certified shall then be deemed to have been duly stamped as from the date of its execution, notwithstanding anything to the contrary contained in section 35 or in any other section, Explanation.—For the prwrposes of this section, @ stamp used for indivating the cOweefO8 (or postage paid is also a stanip of improper desetiption, Jo making this recommendation, we are conscious that the constitutional scheme fge the distribution of the proceeds of taxes is not! identical in regard to courtfees and non-judicial staraps and postage stamps. We presume that the Central Government will have no objection to the proposéd valet of instruments bearing court-fee stamps. : TBI) TOL FOR gpa, Sted Rat Singh wi Botan, ALR: 1957 Maya Bhacet 181, 182, pala 5, 2. O47. ; F Piae . Madapyt, A.LR. 1963 AP. 457 dsnguished in Anoop Chand v. Norhmal, ALR, 1988 Haj, 114, 4. Q48CHAPTER 18 IMPOUNDING AND CONNECTED PROVISIONS— SECTION 38—47 18.1. An instrument not sulfciently stamped is impounded under sections 33—35. Alter Sechon - 3%— this is done, the question arises whac further action should be taken. Section 38 is one of Introductory. the principal sections providing for what is to be done with an impounded instrumeas. If the deficit duty and penalty are paid, the impounding officer is, under scetion 38(1), required to send to the Collector an authenticated copy of such instrument, together with a certificate in writing setting out certain particulars. Further action in regard to the copy of the instrument is then taken under section 39. It a party does not pay the deficit doty and penalty under section 35, the court has 10 impound the instrument under section 33, and forward it to the Colfecior under section 38(2) Ie is: then for the Collector to give his decision under section 40 about the proper duty and penalty {if any) to be charged. : 18,2. This, in gener cases under section 38; the section is the scheme of the section, We heve gone through the important! ind find that they do not reveal any serious difficulty in the working of However, one verbal point requires to be considered under section 38(1), and with refer- ence to section 38(2), a suggestion will have to be dealt with, 18.3. The point concerning section 38(1) is this—At present, under section 38(1). when section 38) the person impounding an instrument under section 33 has by law oF consent of pastiss authority Resomewndation to seogive evidence and ndmits such instrument in evidence upon payment of “a penalty” as ‘T°! Smenee provided by section 35 ot of “duty” as provided by section 37, he shall send to the Collector ‘an authenticated copy of such insirument, together with the ‘presctibed certificate, ‘Our recommendation is that the words “duty and” should be added where section 38(1) refers to section 35, 18.4. As to sub-section (2) of section 38, a suggestion for an amendment, received from Section 38(2) 4 Ste Government? may new be dealt with Section 38(2), as already stated, provides, that SUB ‘in pases not falling under section 38(1), (that is to say, in cases other than those where the pareon impounding an instrument not duly stamped has authority io recive evidence and admits the ‘instrument in evidence upon payment of 2 penalty), the person impounding the instrument shail send it in original to the Collector. Under section 40, the Collector so receiving the instru- ‘ment atdy either certify by endorsement on the instrument that it is duly stamped or not charge- able with duty, or, if he is of opinion that such instrument is not duly stamped, may require payment of the proper duty together with the penalty; and, after the Collector has so dealt with the instrument, he has to return it to the impounding officer after an endorsement to that effect wader section 42(2), then the instrument shall become admissible in evidence, and shall be delivered to the person from whose possession it eame into the hands of the officer impound- ing it ete. suggestion of state Government, ian Ram, ALR. 1925 All. 478. (0) Ihre Stido Prasad, A.LR. 1934 All. 1054 (©) Manganese Minerals Led. State of West Bengal, ALR. 1960 Cal. 40. (@) Jat Nard v. Yasin Kham, ALR, 1955 Hyd. 2. (© TX. Rarcharal v, Md. Nazeer Kian ALR. 1989 Mys, (72 ( Yasuderan . Krishan Ramvath, ALR. 1953 T.C. 559. + Suggestion of the erstwhile Government of Madras, Pile No. F. 34N57-Pt 1, LC. S. No. 8. 139Scheme of ‘ection 3802), amine 140 If the instrument so sent in original’ is lost, destroyed ot damaged before the Collector takes action under section 40, then it is not possible (under the Act as it now stands) to collect the stamp duty and penalty duc, with the result that there is a loss of revenue to the Govern ment. It has, therefore, heen suggested that the person impounding the instrument should, before sending it to the Collector under section 38(2), keep an authenticated copy of the instrament in bis custody. If the original which has to be sent to the Collector, is lost, destroyed ‘or damaged, thea the authenticated copy should, it is suggested, be treated as the original instrument for the purposes of levying the stamp duty and penalty due, and should be admitted in evidence on payment of such duty and penalty. An amendment of section 38(2), to achieve these two objects, has been proposed by the State Government 18.5. Usfore expressing our view as to the point raised in the suggestion, we should consider in detail the scope of section 38(2). There are 1wo cases in which impounding of instruments not duly stamped is provided for by the Act namely, (i) where a person has authority to receive evidence or (ii) where a person is in charge of a public office, provided (in both cases), the instrument chargeable with duty is produced before him or comes before him in the performance of iis functions. In the first case, that, is to say, where a person impounding thas authority to receive evidence, if the party pays the penalty, then the instrument impounded can be admitted in evidence, and need not be sent to the Collector. In that case the person impounding seads only a copy cases a Certificate (that is) to the Collector.” In “other cases”, hhe has to send the original to the Collector. Those “other cases” would appear to be the following — (Where the person impounding has no authority by law or consent of parties to receive evidence ; Gi) Where he has such authority, but the party concerned does not pay the duty (or the deticieney in duty) and the penalty ete. ; (iii) Where, even if the party concerned is prepared to pay the duty of the penalty, the instrument cannot, by virtue of the exceptions given in the proviso to the relevant section? be admitted in evidence,* under the present law. In these cases, the person impounding must send the instrument in original. There is a provision’ for preparing » copy of the instrument, but even when a copy is prepared under ther section, What is sent f0 the Collector is the original. 18.6, Now, the suggestion is, thet before sending the original, the person impounding should keep an authenticated copy. If the original is lost before action is taken under section 40(1), then (it is suggested) the copy should be treated as the original for the purpose of the levy of the penalty etc. and also for the purpose of the Indian Evidence Act, 1872, ‘This suggestion of the State Government was circulated by the Government of India* to other State Governments. It appears,® that many State Governments were in favour of the suggested change. One State Government was not, however, in favour of the change suggested, con the ground, first, that the proposal would increase the work in the public offices concerned, land secondly, that the change was nol necessary, as cases of original documents being fost or damaged were very few, Another State Government suggested that the copy of the document be made at the cost of the person producing it. 7 Seetion 38 @ 1. Section 38 (1) Section 38. + Section 38 @) 4 Section 350), proviso (@). + Compare (English) Stamp Act, 1891, (54 & 5S Vie. C3. Section 141) 1. Section 46 4 Ministy of Pipance (Revenue Division), 4,8, No, 8 File No. F 3 (2)S7LC. Pt.141 The comment of another Slate Government was, that the impounding officer should Keep the originat with himsel, aud should send only a copy to the Collector for the levy of duty and penalty. 18.7. We have consideced the suggestion, and the points made in the comments expressed theerom. White the object of the suggestion is good, we are of the view that certain considera. tions—such as increase in office work--cannot be brushed aside, Cases of loss of an instrusiient in transit would be sare. ‘To meet those rare cases, we do not think that a copy should be prepared in every case. And, in our view, there is no case for @ change in the present law. In response to our Questionnaire! also, while many replies have favoured such amendment as is set out below, some do not think that, to meet rare cases, a change shouki be made in the section. 18.8. However, if the Government docs consider some change necessary, then, in our view, the alternative suggested by another State Government, namely, that the original should ‘be kept by the impounding officer and a copy should be sent to the Colfector, is preferable to other alternatives, If the original is sent to the Collector and lost in transit, and the question fof proof of signature or thumb impression arises, then a copy Kept by the impounding officer would not be of much utility, and there would be difficulties. Where the party interested or the petson producing is not prepared to pay the cost of prepating the copy, we do not think that the person impounding tbe istrument should be required to prepare an authenticated copy. No doubt, if the original is lost in transit and the penalty cannot be levied, a loss is thereby ‘caused to the revenue. But, against this loss, should be cffset the increase in work and cost ‘that will arise if an authenticated copy is required to be prepared in every case. It should be remembered, that the acceptance of the suggestion of the State Government would mean that-in every case an authenticated copy should bevprepared even though the cases in which oes of the instrument occurs in transit would be only a faction of the cases in which action is taken under scction 38(2). We think that the existing provision need not be disturbed where nobotly “comes forward to beer the cost of preparing the copy. Even in regard to the few ‘cases where Joss may occur, an option may be left to the party. 18.9. We, therefore, recommend that if Government consider necessary that the section should be amended, the following? proviso may be inserted in section 38(2) :— 7 “Provided that where the person who produced the instrument, or any party Interested, ts prepared to pay the cost of preparing « copy of the instrument, then— (8) an authenticaed copy of the instrument shall be got prepared by the person impounding the instrument ; (b) only the authenticated copy shall be sent to the Collector ; (e) the Collector shail take action on the auihenticated copy as if it were the instrument in original ; and (a) any certificate 10 be endorsed with rejerence to the instrument by the Collector tder clause (a) of sub-section (1) of section 40 or under subsection (1) of section 42 shall be endorsed on the authenticated copy: and when that copy is received Bock by the person impounding the instrument® shat person shall copy the certificate on the original instrument and also authenticate such copy of the certificate.” Fam. Sach conseauential changes as may be nezessary in other section, say Us cart out + Ag to return ofthe instrument to the person impounding, see section 402) and eaves cited in Mulla, Stamp Act, 1963) pege 146, Footnote (=). 2A M of Lowi77—19 Various alter- natives. ‘Recommendation.142 Section 38A. 18.10. At this stage, it is necessary fo depart from the sequence of sections and to refer to Loe nee ag section 46. That section reads “46. (1) If any insteument sent to the Collector under section 38, sub-section (2), is lost, destrcyed or damaged curing transmission, the person sending the same shall not be liable for such loss, destruction or damage. (2) When any instrument is about to be so sent, the person from whose possession it came into the hands of the person impounding the same, may require a copy thereof to be made at the expease of such first-mentioned person and authentir ‘cated by the person impounding such instrument.” Recommendation 18.11. In our opinion, scction 46 should be transposed after section 38, since its subject Section 4eas Matter is connected with section 38. Accordingly, we recommend that new section 38A should be ssetion 384. inserted, incorporating the substance of section 46. Certain verbal changes are needed in section 46, if section 38(2) is revised on the lines discussed above.? Gi) In section 46(1), the words “or authenticated copy”, should be added, if section 38(2) is revised. Gi) Section 46(2) becomes redundant, if section 38(2) is revised. Section 39. 18.12. Section 39 deals with the power of the Collector to refund the penalty paid in Fespect of an instrument, a copy: wheeaof is sent to him under section 38(1), that is to say, an instrument impounded by reason of deficiency in stamp. It needs no change. 18.13. Section 40 deals with: the Colleeior’s power to stamp inserurnents impounded. under the Act. Usually, the impounding of the instrument is by some other officer, who senda. i¢ to the Collector under section 38(2). But it could be by the Collector himself, if the: deca ‘ment is produced before him in the perfomssnce of his ordinary functions, The poscechare: to bbe followed by the Collector in both the: cases is laid down in section 40. Section 40. If the Collector is of opinion thet the iostrament is duly stamped or is not chaggeable ‘with duty, he certifes accordingly by endorsement. under section 40(1)(a). Undes ection 40(2), this certificate is conclusive evidence of the matters stated thercin, for the pirpdses of the Act. If the Collector thinks that the instrament is.chargeable, and not properly stamped, be shall require payment under section 40(1) (b). : 18.14, While section 49, sub-section (1)(b), empowers the Colfcctor w “require” the Prssariy, ss 10 stamp duty or deficiency to be paid, it is silent as to the perso or persons who can be bevreqaired “to required to pay the same, Ther is no distinct, provision in section 40, or anywhere else in mr the Act, empowering the Collecior to demand the proper stamp duty and penahy-from the person ‘who produces in Court. ‘ According to the High Court of Allahabad,? it is the person who wishes a decument to be admitted in evidence in Court, who is primarily the person from whom the requisite duty and penalty: should be recovered in the first instance, end if it is due from a third person, he can recover it under section 44. ‘The Lahore High Court, has dissented from the above view. Accotding to it, the Court fot the Collector cannot ccmpel such person €ie,, a person. not originatiy bound to bear the expenses of providing the duty}, to pay the duty’and penalty. If he chooses to pny, section 44 enables him to recover the same. But the stamp duty and penalty can’ compulsorily. be recovered only from the person liable to pay the proper stamp duty in the first instanee.«- The, 1, See discussion as to section 38(2). 12, Secretary of State v. Bhasharat Cll, LR. 30 Al. 271,143 person ‘not so liable is not subject to compulsory recovery under section 48, It was also observed that if, in a particular case, the Stamp Act did not fix the liability for payment on any particular person, then the Collector should keep the impounded document in his custody, and no person interested in the deed would be able to make any use of it unless and until the necessary duty and penalty were paid. 18.15, The Lahore view appears to us to be more logical, and should be adopted. We shall deal with the maiter in detail’ under section 48. 18,16. Intentional omission to stamp an instrument is dealt with strictly by the Act, pasticularly : A fourth view is that bottr the executant and the parties liable under section 29 of ‘by agdsement, can be called upon to pay the duty under section 48, This was the view of Bifctpenicunn J, in an Andhra cas? ij WB4, Im view of the obscurity and uocertainty of the position in regard 10“the inter- ‘wlatienahip of section 29 and similar sections on the one'hand, and section 48 on the offer Need forelarifow ‘needy itis desirable tbat the matter should be pit beyond Houbt. It is neither in the imterests toa cof the State nor in the interests of the citizen that liability to bear the tax should be left im donb. 1 Stinamaniam Cheror . Revenue Dison Offer, ALB. 1956 Ma. 454. 2 haephand Stray of Se, (939) Naw 1,38, mee 0 HM. Romane v. Ste of Treancoe, AUR 35t rvancore Cochin 251, 253, pata 6 3 F apne Rao v. Aion! Diarer Magivv ave, Koraput, ALR: 1915 Osa 20. 4 Sit ease lw reviewed In Mohamed Husain v. Emperor, ALR, 1940 Lab. 315, See aso A.LR. 1970 MP. 74 S Serer of State, Besarsilah, (1808) 1L.R. 39 All 27, & Mohamad Husain. Emperor, ALR. 160 Lab. 315. 7 Ast joint and several labiy, see ALLR. 1962. Mad, 428 and (1957) 2 M.LJ. 567 and ALLR. 1970 M.P.74. | & Board of Rerene v.Apptia Narasndate (1957) Andhun Weekly Reporter 288 (5, Ghimesakaras 3).Odjections seswered, Basle question. 148, 19.7. As {© the lines om which the section should be amended, we are in broad agree~ ment with what Bhide J. said in the Lahore High Court in Mubanvaad Hussain's case, In the Lahore case," Bhide J. observed : “If the intention of the Legislature was that tho necessary duty or penalty should be recovered from the person who wishes to have the document admitted in Court, ope would have expected to find some provision to that effect in the section itself or at least somewhere else in the Act. But no such provision has been made. The reason is, I think, not far to seek. When person wishcs to have a document admitted in Court for the purpose of his case, it may often be to his interest to pay the duty and penalty at once in order to get the

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